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5 big changes to social security benefits in 2025

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If you are retired or about to retire, it is important that you have a plan for your retirement income. For most people, Social Security will play an important role in this plan, so staying up to date on the latest benefit information is critical.

The Social Security Administration (SSA) recently announced several important changes to the 2025 program, including the Annual Cost of Living Adjustment (COLA). Here are some major changes to Social Security coming next year — and what you need to know.

Pay attention to these 5 changes in social security in 2024

More than 72.5 million people rely on one of Social Security’s benefit programs, so annual changes to the program and its payouts are always eagerly anticipated.

This year’s cost of living adjustment (COLA) is lower than last year’s 3.2 percent increase. Still, any additional income is a welcome boost for beneficiaries living on a fixed income. (If you need help developing a plan for your retirement income, consider hiring a financial advisor.)

1. The cost of living adjustment (COLA) is increasing

The SSA has announced that benefit checks will increase by 2.5 percent through 2025. The 2.5 percent adjustment will amount to an average increase of $50 in monthly benefits for retired workers on benefits starting in January.

Specifically, the average check for retired workers will increase from $1,927 to $1,976. For a couple where both partners receive benefits, the estimated payment will increase from $3,014 to $3,089.

The SSA has linked COLA adjustments to the Consumer Price Index for Urban Wage Earners and White-collar Workers (CPI-W) since 1975. To determine the COLA, the SSA compares the CPI-W for the third quarter of the previous year with the third quarter. CPI-W of the current year. The COLA is then adjusted based on the percentage change in CPI-W from year to year.

2. The maximum taxable income will increase

In 2024, the maximum income subject to Social Security taxes was $168,600. This means that employees who pay into the system will be taxed on their wages up to this amount, usually at the rate of 6.2 percent. By 2025, the maximum income will increase to $176,100, meaning a greater share of a worker’s income will be subject to the tax. This adjustment is the result of an increase in average wages in the US

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3. The maximum social security benefit will also increase

The maximum Social Security benefit for a worker who retires at full retirement age will increase from $3,822 in 2024 to $4,018 in 2025. This maximum applies to those who retire at full retirement age, which is 67 for anyone born after 1960.

For those who retire before full retirement age, the maximum benefit will be lower, as benefits are reduced in such cases. On the other hand, those who retire after full retirement age can increase their maximum benefit by delaying retirement.

4. Average benefits for spouses and disabled workers are also increasing

In 2025, the average benefit will increase across the board. This includes benefits for widows, widowers and the disabled, among others. Here’s how these numbers break out:

  • The SSA says the average widowed mother with two children will see an increase from $3,669 to $3,761.
  • Elderly widows and widowers who live alone will see their benefits increase from $1,788 to $1,832.
  • Benefits will increase from $2,757 to $2,826 for a disabled worker with a spouse and one or more children.

Of course, these are averages and individual situations may differ.

5. Social Security adjusts the exempt amounts for the income test

If you receive Social Security retirement benefits before you reach full retirement age, the program may reduce your benefits if your earnings exceed certain limits. This is known as the retirement income test and can take up a significant portion of your benefits if you are still working. In 2025, the exempt amounts for the pension income test will be as follows:

If you start collecting Social Security before full retirement age, you can earn up to $1,950 per month ($23,400 per year) in 2025 before the SSA starts withholding benefits, at a rate of $1 in benefits for every $ 2 over the limit. In 2024, the maximum exempt income was $1,860 per month ($22,320 per year).

In the year you reach full retirement age, this rule still applies, but only until the month you reach full retirement age, and on much more forgiving terms. By 2025, you can earn up to $5,180 per month ($62,160 per year) before benefits are withheld, at a rate of $1 in benefits for every $3 earned above the limit (instead of every $2). In 2024, the threshold was $4,960 per month ($59,520 per year).

In short

Social Security COLA 2025 offers retirees and others an increase in their benefits. However, this is not the only change in the program. Other levels and thresholds have also been adjusted to reflect continued cost increases.