Make sure you’re not in the dark.
Did you know that Social Security is almost 90 years old? The Social Security Act was signed into law in August of 1935, and for decades since, older Americans have been able to collect monthly benefits.
But just because Social Security has been around for a long time doesn’t mean the program just stays the same. Recently, the Social Security Administration announced a number of key changes to the program that are set to take effect in 2025 . And it’s important to be aware of them whether you’re retired or not. Here’s what’s in store for the new year.
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1. Benefits are rising by 2.5%
Each year, Social Security benefits are eligible for an automatic cost-of-living adjustment (COLA). The purpose of COLAs is to help ensure that seniors are able to maintain their buying power from one year to the next as living costs naturally rise.
In 2024, Social Security benefits rose 3.2%, but next year’s COLA is going to be smaller. Come 2025, benefits will only increase by 2.5%. However, it’s worth noting that 2025’s smaller Social Security COLA comes in the wake of cooling inflation.
You may have noticed that your grocery and utility bills aren’t climbing at quite as rapid a pace these days. So what you lose in the form of a smaller Social Security increase in the new year, you gain in the form of not having to spend as much money on everyday essentials. All told, things should largely even out.
2. The earnings-test limits are rising
Seniors on Social Security are allowed to earn money while collecting benefits. And once you reach full retirement age, you don’t have to worry about how much you earn. You could bring home $500,000, and it won’t result in having any of your Social Security withheld.
But if you opt to work while on Social Security before reaching full retirement age, you’ll need to be mindful of the program’s earnings-test limits. In 2025, you can earn up $23,400 without any negative consequences. But from there, $1 in Social Security will be withheld per $2 you earn.
There’s also a higher-earnings test limit for people who will reach full retirement age at some point in 2025 but will start off the year not having yet reached it. In that case, the earnings threshold to keep in mind is $62,160. From there, $1 in Social Security will be withheld per $3 you earn.
It’s important to know what Social Security’s earnings-test limits look like so you can plan accordingly. But also know that withheld benefits are not forfeited permanently. You do get that money back once you reach full retirement age. So if a lucrative job opportunity comes your way, don’t automatically write it off for fear of losing out on some of your Social Security income for good.
3. The wage cap is increasing
Social Security relies on payroll tax revenue to stay afloat. Each year, there’s a wage cap established that determines how much income is taxed to fund the program.
In 2025, the wage cap is $176,100, up from $168,600 in 2024. This means that higher earners will lose more of their pay to Social Security taxes. However, paying more into Social Security could mean ending up with a larger monthly benefit down the line.
And while it can be argued that higher earners don’t need Social Security so badly because they make enough money to fund a retirement plan, it’s not a given that everyone with a six-figure paycheck is steadily contributing to an IRA or 401(k). Larger monthly benefits in retirement might end up saving higher earners who live in high-cost areas and don’t manage to save all that much.
You might assume that Social Security isn’t the sort of thing you need to keep reading up on. But actually, the program is changing quite a bit in 2025, and that could impact your finances in one way or another. So it’s best to keep tabs on Social Security, regardless of your age or stage of life.
