Upcoming Changes to Social Security: What You Need to Know for 2025
Social Security has been a vital program for almost ninety years, but significant modifications are on the horizon. Major changes are set to take effect in 2025, impacting millions of Americans. Whether you are currently receiving benefits or preparing for retirement, staying updated on these changes is essential. Here are two significant updates coming in 2025 and their implications for you.
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1. Modest Increase in Social Security Benefits
In a bit of positive news, Social Security benefits will see an increase of 2.5% in 2025 due to the annual cost-of-living adjustment (COLA). The average monthly benefit will rise from $1,927 to $1,976, resulting in approximately $50 more each month starting in January. However, if you are enrolled in Medicare Part B, this increase may be partially offset by higher premiums.
While any increase is welcome, reactions are mixed. According to a recent Motley Fool survey of 2,000 retirees, 54% believe next year’s COLA is insufficient. This sentiment isn’t unusual, as the same survey found that 62% of retirees have had to reduce spending on nonessential items due to inflation.
To put the 2025 COLA in perspective, let’s look back at recent years. Past adjustments have seen more significant growth: 3.2% in 2024, 8.7% in 2023, and 5.9% in 2022. Compared to these substantial increases, the upcoming 2.5% bump may feel disappointing.
This figure, however, directly reflects the current inflation trend, hinting that inflation may be easing. It’s important to remember that not all years have been so generous. In 2010, 2011, and 2016, recipients received no raise at all, with meager increases of just 1.6% and 1.3% in 2020 and 2021, respectively.
2. Increased Earnings Opportunities While Collecting Social Security
Many retirees are working while collecting Social Security payments; the average monthly check of $1,920.48 often doesn’t cover living expenses. This is evident in the same Motley Fool survey, which showed that 50% of retirees are considering returning to the workforce.
For those planning to work while receiving benefits, good news is on the way: Social Security’s earnings limits will increase in 2025. Below are key details regarding the earnings-test limit and its potential impact on your benefits.
- Earnings-test limit for early filers: If you claim benefits before reaching full retirement age (FRA)—which is 67 for those born in 1960 or later—the limit will increase to $23,400 in 2025, up from $22,320 in 2024. This allows you to earn an extra $1,080 before the Social Security Administration begins withholding $1 from your benefits for every $2 earned above this limit.
- Earnings-test limit for those reaching FRA in 2025: If you are reaching FRA in 2025, your limit jumps to $62,160, an increase from $59,520 in 2024. After this threshold, $1 is withheld for every $3 earned beyond the limit.
The good news is that once you reach FRA, the earnings test will no longer apply. Additionally, any benefits withheld due to this test aren’t lost; they will be restored, leading to higher monthly payments in the future.
As you plan to collect Social Security next year, it’s crucial to be aware of these upcoming changes. Being informed can optimize your benefits and help you retain more of your income.
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