Top 3 Social Security Changes to Watch in 2025

On By Littum

Charlene Rhinehart
| The motley fool

As we enter 2025, you may be setting financial goals for the year and compiling your to-do list. While you’re at it, you should also keep an eye on the Social Security changes coming this year. These updates can affect you whether you are still working or already retired.

To help you prepare, I’ve pinpointed three major changes the Social Security Administration (SSA) announced in October.

1. Social benefits will get a boost thanks to COLA

I’m kicking off next year’s Social Security changes with one of the most anticipated updates — the annual cost of living adjustment (COLA). COLA helps recipients maintain their purchasing power from one year to the next.

2023 saw a large COLA of 8.7%, while 2024 brought a smaller increase of 3.2%. For 2025, the bump will be even smaller at 2.5%, the smallest increase since 2021. However, this adjustment closely matches the average COLA of 2.6% over the past decade.

What does this mean for your wallet? On average Social security pension benefits will increase by about $50 per month starting in January 2025. But if you include Medicare Part B payments, your net increase will be less.

While Social Security recipients look forward to the annual COLA, next year’s increase isn’t exactly a game changer. In fact, 54% of retirees in a recent Mottled Fool survey said the 2025 COLA will not be enough to keep up with the cost of essentials.

The bright side? A minor adjustment reflects cooling inflation compared to recent years. Prices are still rising, but not as steeply as they did in 2022 and 2023.

2. You can earn more before Social Security benefits are reduced

Do you work and collect social benefits? You are not alone.

The average Social Security check is $1,925.46 in November 2024, so it’s no shock that many retirees are finding it difficult to cover the bills if it’s their only source of income. That’s a big reason why half of retirees are considering going back to work, according to the Motley Fool survey mentioned earlier.

If you work and collect benefits, however, there is a cap on how much you can earn before your benefits hit. One limit applies if you claim for social security full retirement age (FRA), which is 67 for those born in 1960 or later. Another limit comes into effect if you reach FRA in 2025.

Here’s the good news: Earnings limits will increase in 2025. That means you can earn more money before Social Security starts reducing your benefits. Here is an overview of the earnings limits:

  • Too early files: For those who claim benefits before reaching the FRA, the earnings test limit will increase to $23,400 in 2025, up from $22,320 in 2024. When your earnings exceed $23,400, the SSA will take $1 from your benefits for every $2 you earn above that limit. For example, if you expect to earn $40,000 from work in 2025, that’s $16,600 over the limit. As a result, your Social Security benefits will be reduced by $8,300 for the year.

  • For those who reach FRA in 2025: The earnings test limit is higher for those who reach FRA. That will increase to $62,160 in 2025, up from $59,520 in 2024. Above this threshold, the SSA will withhold $1 for every $3 you earn.

If you’ve already reached FRA, you’re off the hook – the earnings test no longer applies. Even better, any benefits previously withheld due to the means test will be returned to you through higher monthly checks.

3. High earners will pay social security tax on more income in 2025

Not retired yet? If you’re a high earner, you’ll want to keep an eye on Social Security’s maximum taxable income limit. That increases in 2025, meaning a larger portion of your paycheck will go toward Social Security taxes. Sure, paying more taxes isn’t exactly something you’re probably looking forward to, but that extra cash helps fund benefits for current and future retirees.

Here’s the deal: In 2024, the taxable earnings cap is $168,600. But by 2025, that rises to $176,100.

Each year the government sets a ceiling on how much of your earnings can be taxed for social security. This cap is not tied to inflation like cost of living adjustments (COLAs). Instead, it is based on changes in the national wage index.

The start of a new year is the perfect time to review your finances and prepare for the upcoming changes. Whether you’re retired or still punching the clock, a little planning now can make 2025 a smoother ride.

The Motley Fool has one disclosure policy.

The Motley Fool is a USA TODAY content partner that offers financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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