Social Security Changes for 2025: COLA and Key Updates Unveiled
The government unveiled its major Social Security announcement for 2025 on October 10. The cost-of-living adjustment (COLA) will be a modest increase of 2.5%, equating to about $49 added to the average monthly benefit.
However, this adjustment isn’t the only update affecting beneficiaries and workers paying Social Security payroll taxes next year.
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1. Stricter Qualifications for Social Security Benefits
To qualify for Social Security retirement benefits at age 62, you need 40 work credits. A work credit in 2024 is based on $1,730 in earnings, with a maximum of four credits obtainable each year.
In 2025, the amount required to earn a credit will increase to $1,810. To achieve the maximum four credits, workers need to earn at least $7,240 annually.
For many part-time workers, this requirement remains manageable, and those who have already earned 40 credits in the past will not feel the impact of this change.
2. Higher Earnings Subject to Social Security Taxes
While most individuals pay Social Security taxes on all their income, high earners have a limit. The taxable earnings cap for 2024 is $168,600. Income over this threshold does not contribute to larger Social Security benefits in retirement.
This cap will rise to $176,100 in 2025, requiring some affluent workers to pay more in taxes. For the average earner, this change will not alter their financial situation significantly.
High-income individuals may want to prepare for ongoing adjustments to this ceiling, as proposals to raise or eliminate it are under discussion, but solutions remain unconfirmed.
3. Increased Earnings-Test Limits
The earnings test can reduce benefits for seniors still working while claiming Social Security before reaching their full retirement ages (FRA), which ranges from 66 to 67 based on birth year.
In 2024, the earnings limit is $22,320; recipients lose $1 for every $2 over that amount. For those past their FRA, the threshold increases to $59,520, where they lose $1 for every $3 earned above this limit.
Next year, those limits will rise to $23,400 and $62,160, respectively, allowing seniors more leeway in their earnings without penalty.
It’s important to note that any benefits withheld due to this earnings test are not permanently lost. Once beneficiaries reach their FRA, the government recalculates their benefits to account for the withheld amount, restoring funds in a different form.
4. Increase in Maximum Benefit Amount
The maximum Social Security benefit will exceed $5,000 per month for the first time, reaching $5,108. Yet, most retirees will earn significantly less than this amount.
To receive the maximum benefit, individuals must contribute the maximum Social Security tax for at least 35 years and delay their benefits until age 70. Most workers, unfortunately, cannot manage this, leading to a lower average benefit, which is projected to be around $1,968 per month in 2025.
While these updates may not immediately impact everyone, they are important to keep in mind, particularly for high earners or those facing the earnings test. The Social Security Administration typically adjusts these factors, so expect more changes in 2026 and beyond.
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