Major Social Security Changes for Retirees: What You Need to Know for 2025!
The Social Security Administration (SSA) regularly introduces updates to its program, aiming to protect beneficiaries and enhance productivity. For retirees, these changes are particularly important, as they affect the benefits they rely on. Every October, SSA announces major updates, and this year is no exception. On October 10, 2024, SSA will reveal key changes that could impact both current retirees and those approaching retirement. Here’s a look at three significant updates you can expect to see starting January 1, 2025.
1. Higher Earnings Test Threshold for Retirees
One of the most anticipated changes is the increase in the earnings test threshold for Social Security beneficiaries. This allows retirees who are still working to earn more money without losing benefits.
Currently, if you work while collecting Social Security benefits before reaching full retirement age, there is a limit on how much you can earn before your benefits are reduced. For 2024, the earnings limit is set at $22,320 for those who have not yet reached full retirement age, and $59,520 for those who plan to hit full retirement age before the year’s end. In 2025, these limits are expected to rise to account for inflation.
This means that if you’re under full retirement age and continue working, you’ll be able to earn more without seeing a reduction in your benefits. However, once you reach full retirement age, there are no limits—regardless of how much you earn, your Social Security benefits won’t be reduced. If you had benefits withheld because of the earnings test, those amounts will be restored once you hit full retirement age.
2. Increased Social Security Earnings Limit Due to Inflation
Each year, Social Security adjusts its earnings cap to keep up with inflation and wage growth. This cap refers to the amount of income subject to Social Security taxes. For 2024, the wage cap is $168,600. In 2025, this figure is set to increase, allowing workers to earn more before reaching the taxable cap.
For high-income earners, this may mean that more of their wages will be taxed, which could result in a larger overall tax bill. However, the exact cap increase will be announced alongside other updates on October 10, 2024.
If you fall into this category, you might want to consult with a tax professional to understand how these changes will affect your income and taxes. Planning could help you find ways to reduce your tax liability.
Read More: Social Security Payment Changes: November Brings Schedule Adjustments for Beneficiaries!
3. A Lower-Than-Expected COLA for 2025
The cost of living adjustment (COLA) is one of the most closely watched announcements by Social Security beneficiaries. It determines how much monthly benefits will increase to keep up with inflation. For 2025, however, the COLA is projected to be lower than expected.
The nonpartisan Senior Citizens League estimates that the 2025 COLA will be around 2.5%, but this could change depending on the inflation rate in September 2024. While any increase in benefits is welcome, there’s a catch: Medicare premiums.
Social Security benefits are often automatically reduced by Medicare Part B premiums. So, even though your Social Security check might increase due to the COLA, higher Medicare premiums could wipe out those gains. Until Medicare announces its premiums for 2025, it’s unclear how much more money retirees will actually see in their monthly checks.
These upcoming changes are significant for millions of Americans, especially retirees. Whether you’re already collecting benefits or planning to retire soon, understanding these updates can help you make informed decisions about your financial future.
The increase in the earnings test threshold offers more flexibility for those who want to work while collecting Social Security benefits. At the same time, higher taxable earnings limits mean that higher earners may need to brace for an increase in payroll taxes.
While the COLA for 2025 might not be as high as some had hoped, monitoring Medicare premiums will be essential for calculating how much money will actually be in your pocket each month. To stay informed, be sure to check the official announcement from the Social Security Administration on October 10, 2024.