2025 is rapidly approaching, and it's important to know what to expect from a personal finance perspective once the new year begins. And while there are no major policy changes to Social Security, there are still some important changes for both retirees and workers to be aware of.
Each year, there are several inflation-based changes, as well as one that depends on wage growth, and here's how these could impact your current and future Social Security benefits, the taxes that are withheld from your paycheck, and more.
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The 2025 COLA
Arguably, the biggest change coming to Social Security in 2025 is the annual cost-of-living adjustment, or COLA. To be sure, inflation has cooled off considerably, and as a result, the COLA that goes into effect for 2025 isn't nearly as large of an increase as those of the past few years.
However, Social Security beneficiaries will still receive a 2.5% raise for 2025. Technically, this takes effect with the December 2024 payment, but since Social Security is paid a month in arrears, it will first be reflected in the payment you receive in January 2025. For context, this means that if your monthly benefit is $1,900, roughly the average for a retired worker, you'll get a raise of about $48 per month in 2025.
Maximum Social Security benefit
The maximum possible Social Security benefit for someone retiring at full retirement age in 2024 is $3,822. Because of some inflation-related tweaks to the way Social Security is calculated and how past years' earnings are indexed for inflation, the maximum in 2025 will be $4,018 per month, or more than $48,000 per year.
People who wait to claim Social Security can get even more. In 2025, the maximum possible benefit for someone retiring at age 70 is $5,108 per month, which works out to nearly $61,300 per year in inflation-protected retirement income.
Taxable maximum earnings
Here's a Social Security change that applies to current workers. Each year, there is a maximum amount of earned income that is subject to Social Security tax. And unlike the COLA and other adjustments, this is based on wage growth, not inflation.
For 2025, the maximum taxable earnings for Social Security, formally known as the contribution and benefit base, is rising to $176,100. Any income up to this amount will be subject to Social Security tax, which is 6.2% each for employees and their employers.
The earnings test becomes more generous
If you collect Social Security benefits and have not yet reached full retirement age, some or all of your benefits can be withheld if you earn more than a certain amount.
In 2025, the earnings test limits for those who will reach full retirement age after the end of the year will be $1,950 per month, up from $1,860 in 2024. For earnings beyond that threshold, $1 in benefits will be withheld for every $2 in excess earned income.
If you'll reach FRA during 2025, the monthly limit will be $5,180, up from $4,960, and only months before your birth month count. Above this threshold, $1 in benefits will be withheld for every $3 in excess earnings.
Could we see even bigger changes beyond 2025?
As you can see, the changes to Social Security in 2025 all have to do with inflation and wage growth, not any changes to actual laws or policies. However, there's a solid chance that beyond 2025 we could see some major changes. For one thing, Social Security is expected to run out of money in 2034 unless changes are made. And keep in mind that the president-elect has different thoughts on Social Security than his predecessor. So, we could certainly see real changes to Social Security in the years ahead.
