2024 is coming to an end quickly, and several changes and adjustments are set to take effect in the world of Social Security in the new year. Most of these are inflation-related, and while some apply to retirees who already get Social Security, others apply to those who are about to start collecting their benefits or who are still working.
Without further delay, here are five changes to Social Security coming in 2025 that you need to know about.
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1. The 2025 Social Security COLA
Social Security beneficiaries are getting a 2.5% cost-of-living adjustment, or COLA, starting with the payment they receive in January 2025. As of the latest data from October, the average retired worker received $1,925.46 per month from Social Security, so this implies that the average will be about $1,974 once the COLA goes into effect.
2. The Social Security benefit formula
The Social Security benefit formula itself isn't changing, but the so-called "bend points" are.
The basic idea behind the Social Security formula is that your 35 highest-earning years are indexed for inflation and averaged, and your monthly average earnings is applied to a formula with three multipliers -- 90%, 32%, and 15%. These percentages stay the same each year, but the amount of money they apply to, known as the bend points, changes. For those first becoming eligible in 2025, the formula applied to average indexed monthly earnings (AIME) is:
- 90% of the first $1,226.
- 32% of the amount between $1,226 and $7,391.
- 15% of any AIME greater than $7,391.
3. Maximum possible Social Security benefit
As a result of inflation-related adjustments, the maximum possible Social Security benefit is increasing. The most someone who retires at their full Social Security retirement age in 2025 will be $4,018 per month. However, since most people don't start collecting Social Security at their exact full retirement age, consider this:
- The maximum possible benefit for someone retiring at 62 in 2025 will be $2,831 per month.
- The maximum possible benefit at age 70 will be $5,108 per month.
4. Contribution and benefit base
Here's a change that applies to people who are still working, as well as those about to start collecting Social Security. In 2025, the contribution and benefit base is rising to $176,100 from the 2024 level of $168,600.
This figure is often referred to as the "Social Security taxable maximum earnings," because the 6.2% Social Security tax on employers and employees only applies to this level of income. However, it also has to do with the benefit calculation, as it is the maximum amount of money that can be used to determine AIME, which I discussed in the formula section earlier.
5. How much you can earn while collecting Social Security
Last but not least, the Social Security earnings test limits are changing for 2025. If you aren't familiar, if you have not yet reached full retirement age and are collecting Social Security, there is a maximum amount of earned income you can have while still collecting benefits. And there are two components to the earnings test:
- If you reach full retirement age after 2025, up to $1,950 in monthly earnings can be exempt. Above this threshold, $1 in benefits is withheld for every $2 in excess earned income.
- If you reach full retirement age during 2025, up to $5,180 per month is exempt, and $1 can be withheld for every $3 earned above this amount.
It's worth noting that any withheld money isn't just lost – once you reach full retirement age, anything withheld under the earnings test will serve to make your benefit higher.
The biggest changes could be yet to come
As you can see, none of these are "changes" in the sense that the Social Security laws are staying the same from 2024 to 2025. However, with Social Security expected to run deficits for the foreseeable future and run out of money in a decade, more significant changes will have to be made. If you're at or near Social Security age, be sure to keep up with the latest developments.
