People over the age of 65 who meet the standards for retirement benefits get monthly payments from the federal government through Social Security. Over 55 million retired workers get an average of $1,900 a year in Social Security benefits. However, it is important to know that this amount can change every year based on the cost of living adjustment (COLA).
Beneficiaries should start learning more about possible changes that will happen in January 2025 since the year is already halfway over. If you get retirement, survivor, or disability benefits now, read this piece to find out about the new changes that will happen in 2025 that will affect recipients, especially retirees.
3 major Social Security changes arriving in 2025 that will unavoidable impact retiree paychecks
Changes are made to Social Security every year to make sure that payments stay in line with average wages and inflation. Because of this, beneficiaries (and people who will soon be beneficiaries) need to be told because benefits are important for making sure people can retire safely. A new poll from the Nationwide Retirement Institute, on the other hand, shows that a lot of Americans don’t know the basics of the program. There are three major changes that will affect how much retirees can earn each month.
Higher-income earners in the United States should pay more Social Security taxes
Payroll taxes are the main way that Social Security gets money, but people who make more money might not have to pay all of their income into the program. Instead, the amount of money that you have to pay in Social Security taxes each year is based on your annual earnings cap, which is currently $168,600. This means that someone who makes $200,000 a year will not have to pay Social Security taxes on the last $31,400 of their income.
But the Social Security earnings cap generally goes up every year to keep up with wage and inflation growth. People with higher incomes will keep paying the same amount of extra tax until 2025. If you will be affected by a rise in the Social Security payroll tax cap, talk to your CPA right away about how you can avoid paying too much tax. These could include putting as much money as possible into retirement plans or letting investment losses happen on purpose to lower their normal income.
The requirements to be eligible for Social Security will be more rigorous
When a senior hits a certain age, they can’t get monthly payments right away. To get retirement benefits, you must earn 40 work credits over the course of your life, or no more than four credits per year. A work credit is worth $1,730 in 2024. This bar will likely go up, though, in 2025. If you want to get Social Security and only work part-time, you might want to put in more hours. This could help you get the needed number of work credits.
Also, the rise in the value of Social Security work credits won’t have a big effect on full-time workers, since a minimum-wage worker in 2025 should be able to earn enough money to get four work credits. But these aren’t the only changes to Social Security that you can expect in 2025. No matter if you are retired or not, you should watch the show to see what’s coming up. For those who think any of these changes will affect them, now is the time to protect their money. This could mean making a tax plan or being careful with your money.
Seniors should not expect a huge COLA increase next year
Cost-of-living adjustments, or COLAs, are benefits that seniors get every year to help them keep their buying power during times of rising prices. As a result of very high inflation, payments went up by 3.2% in 2024 and 8.7% in 2023. On the other hand, the 2025 COLA is expected to go up by 2.63 percent the following year, which is less than the increases seen in past years. The third-quarter inflation numbers are used to figure out the cost of living adjustment.
In order to be clear, this is just a guess and not the actual percentage. The official increase will be revealed on October 10th. So, until then, seniors and other Social Security recipients will know how much their checks will grow in 2025. Since the COLA raise could be less than expected, people whose only source of income is these payments need to start making changes, like spending less on certain things or looking for other ways to make money.