Some important changes are coming to Social Security in 2025, and there are a few key numbers that you must know in order to understand and prepare for them. Here are three key numbers every retiree needs to be aware of so they'll be ready when the new year rolls around.
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1. The Social Security COLA
The first number to be aware of is the Cost-of-Living Adjustment, or COLA, that will take effect in 2025. A COLA is a benefits increase that retirees receive in most years in order to ensure the buying power of their Social Security does not erode as a result of inflation.
In 2025, the COLA is going to be 2.5%. This means seniors will see their benefits increase by this amount. For retirees receiving the current average benefit of $1,927, the coming increase will result in a new average benefit of $1,976, so checks will go up by around $49.
Your own benefits increase may be bigger or smaller than $49 depending on how big your current benefits are.
Although the process of calculating your exact raise can be complicated, you can get a pretty good idea of how much more money you'll get next year by simply multiplying your current benefit by 2.5%. Social Security is also going to be sending out an official notice in December so you can see your exact increase soon.
2. The 2025 work limits
The next number to be aware of is the work limit. This is the amount of money you can earn while collecting Social Security benefits before full retirement age without the size of your checks being affected.
See, you're allowed to work as much as you want and double dip with benefits once you've reached your FRA but not before. If you haven't hit FRA, here's what the work limits look like:
- You can earn $23,400 per year in 2025 if you will be under FRA for the entire year. This is up from $22,320 per year in 2024. Once you exceed this amount, you'll forfeit $1 in benefits for every extra $2 above the limit.
- You can earn $62,160 per year in 2025 if you will reach FRA at some point during the year. This is an increase from $59,520 in 2024. Once you've hit the limit, benefits are reduced by $1 for every $3 in excess earnings.
If you're planning to work as a retiree while getting benefits, you must know these new limits so you'll find out exactly how much you can earn without your Social Security checks being impacted by your paycheck.
3. The taxable-benefits threshold
Finally, there's one more number to know: the income threshold at which benefits become taxable. This is a little confusing, because not all income counts. It's based on something called "provisional income," which you can calculate by adding up half your Social Security benefits, taxable income from other sources, and some non-taxable income including municipal bond interest.
If this provisional income goes above a certain level, then you get taxed on part of your benefits. Here's what those levels are.
- If you are a single tax filer, up to 50% of benefits could be taxed with a provisional income between $25,000 and $34,000. This is unchanged.
- If you are a single filer and your provisional income exceeds $34,000, then up to 85% of your benefits could be taxed. This is also unchanged.
- If you are a married joint filer, up to 50% of benefits will be taxed with a joint provisional income between $32,000 and $44,000, and up to 85% of benefits will be taxed once your provisional income hits $440,000. This is unchanged.
It may surprise you to learn that the threshold at which benefits become taxable isn't changing even though the COLA is increasing your monthly payment amount and even though other key numbers, like the work limit, are changing.
The reason is simple: While most parts of Social Security adjust automatically to keep pace with inflation, that's not the case for the threshold at which benefits become taxable. That's actually a big issue that has resulted in a growing number of retirees owing taxes on benefits.
By understanding these three numbers, you can find out key details about whether you'll owe taxes, how big your benefits are going to be next year, and how much you can work while you're collecting a Social Security check. This information can help you to make informed financial plans so you're ready when 2025 arrives.
