2025 is more than halfway over, yet changes to important programs like Social Security remain a hot topic. That may be due to recent drama from the nation's capital or because current workers are keeping an eye on Social Security, ensuring they'll be ready for retirement when the day comes.
Here are five changes for 2025.
Image Source: Getty Images.
1. Cost-of-living adjustment
If you're already retired, you're undoubtedly aware that the cost-of-living adjustment (COLA) boosted benefits by 2.5% in January. COLA increases are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and were initially designed to fight inflation. Whether your 2.5% increase has kept pace with the year-over-year inflation rate of 2.7% may depend on where you live and how inflation has impacted your area.
2. Maximum taxable earnings increase
Social Security taxes are calculated as a percentage of your gross earnings. However, it's only up to a specified amount. For example, workers are responsible for paying Social Security taxes on the first $168,600 earned in 2024. This year, workers will pay taxes on the first $176,100.
3. Maximum Social Security benefits age increase
One factor in how much you can receive in Social Security benefits is your age. To make things a little more confusing, full retirement age (FRA) varies by birth year. Claiming Social Security once you hit FRA means receiving full benefits, while claiming earlier permanently reduces your benefits. However, benefits increase by 8% each year you delay retirement past your FRA (up to age 70).
Here's where the increase in age for FRA comes into effect:
- Those born in 1958 hit FRA at age 66 and six months.
- Anyone born in 1959 will reach FRA at 66 and 10 months.
- Individuals born in 1960 or later must wait until age 67 to hit FRA.
4. Earnings test: Allows you to earn more in 2025
If you continue to work while collecting Social Security benefits, you may carefully be watching your earnings threshold. That's because earning over that threshold means the Social Security Administration (SSA) steps to withhold some of your benefits. How much is withheld depends on your age. For example:
- If you haven't reached FRA: SSA will temporarily withhold $1 of benefits for every $2 earned over $23,400 (up from a threshold of $22,320 in 2024).
- If you reach FRA in 2025: If you're going to reach FRA anytime in 2025, there's a special withholding limit for you. SSA will only withhold $1 in benefits for every $3 earned above $62,160 (up from $59,520 in 2024). This applies only to money earned in months prior to your birth month. For example, if you were born in October, only earnings from January through September will apply. Anything earned in October and beyond is exempt from the earnings test because you've reached FRA.
- If you reached FRA before 2025: You can earn as much as you'd like without worrying about benefits being withheld.
However, the money withheld isn't lost. SSA simply holds onto it until you reach FRA when it's added back into your Social Security checks, permanently increasing your benefit amount.
Whether Social Security benefits provide a large portion of your retirement income or barely play a role, it's a good idea to watch for changes -- if for no other reason than to keep up with your household budget.
