Last week, the Social Security Administration announced the much-anticipated cost-of-living adjustment (COLA) for 2025. Next year's adjustment will land at 2.5%, giving the average retiree an extra $48 per month.
This adjustment will be the smallest since 2021, which saw a COLA of 1.3%. While many retirees may be disappointed at the smaller raise, there's still good news ahead.
The COLA isn't the only change coming in 2025. The Social Security Administration also announced all the key figures that will take effect next year. One of those figures is the retirement earnings test limit, which could impact your benefits just as much as the COLA.
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How the earnings test limit can affect your checks
If you're still working in any capacity while receiving Social Security, your benefits could be withheld depending on your age and how much you're earning. Your income will be subject to the retirement earnings test limit to determine how much your benefits will be reduced (if they will be reduced at all). This limit changes from year to year, and there are two separate caps dependent on your age.
If you will reach your full retirement age in 2025, your benefits will be reduced if you earn more than $62,160 per year. If you won't reach your full retirement age next year, you'll be subject to a different limit of $23,400 per year.
| Income Limit: 2025 | Income Limit: 2024 | Benefit Reduction | |
|---|---|---|---|
| If you will reach your full retirement age in 2025 | $62,160 per year | $59,520 per year | $1 for every $3 over the limit |
| If you won't reach your full retirement age in 2025 | $23,400 per year | $22,320 per year | $1 for every $2 over the limit |
Data source: Social Security Administration.
Higher income limits are good news for workers on Social Security, as it means you'll be able to keep more of your benefits before facing reductions. Depending on your age and earnings, this increase could have just as much of an impact on your monthly payment as the COLA itself.
For example, let's say you're 64 years old, your full retirement age is 67, and you earn $30,000 per year working part-time. Since you're under your full retirement age, you'll be subject to the smaller income limit this year and next.
In 2024, that income would be $7,680 over the annual limit, reducing your benefits by $3,840 per year, or $320 per month. But in 2025, that same income would be only $6,600 over the new limit, reducing your monthly payments by around $275.
In other words, starting in 2025, you could keep an extra $45 per month, assuming your income doesn't change. Considering the average retiree will collect an additional $48 per month once the COLA takes effect, this extra money can go a long way for those still working while on Social Security.
Other changes to expect in 2025
Aside from the COLA and the changing earnings test limits, Social Security will undergo a few other adjustments in 2025.
For one, the maximum taxable earnings limit is increasing. This is the highest income subject to Social Security tax, and it will directly affect your benefit amount. The closer you get to this limit, the larger your benefit will be. This cap is $168,600 per year in 2024 and will increase to $176,100 per year in 2025.
Higher maximum earnings limits also mean the maximum possible benefit will go up. In 2024, the most you can receive from Social Security is $4,873 per month. Starting in 2025, though, that figure will increase to $5,108 per month.
As we head into 2025, it's a good idea to look into how your benefits might change. If you continue to work while taking Social Security, you could be in for a pleasant surprise with at least one of the changes on the horizon.
