With the general election coming up in November, everyone is naturally thinking about the presidential candidates and how they might affect the future of Social Security if they win.
No matter who wins the election or which party controls Congress, though, big changes are already planned for 2025 when it comes to Social Security.
No matter what the election results are, these five important parts of Social Security will be changed:
1. Increase in Social Security Payments for Retirees
One big change coming up will directly help people who are already retired. Next year, people who are already getting Social Security income will get something extra. Cost-of-living adjustments (COLAs) are built into the scheme to help retirees keep up with inflation. This change is the result of one of those COLAs.
The consumer price index, which is a way to measure inflation, tracks changes in a certain method that calculates the COLA. This change is necessary because as prices go up, retirees’ ability to buy things goes down. The COLA helps to counteract this affect.
Benefits are expected to go up by 2.6%, but the exact number won’t be known until October, when all the data from the third quarter of the year is fully reviewed.
2. Changes in Work Credit Requirements
Social Security is a scheme of “earned benefits,” which means that people can get benefits if they have worked enough hours. In order to get benefits, a person must earn 40 work credits, and they can only get four credits per year. To get these credits, you have to work and pay taxes on the money you make.
In 2024, you need to make $1,730 in order to get one work point. That means that if someone made $6,920 that year, they would get the full four credits. But the amount needed to get a work credit goes up every year to keep up with pay growth. For example, the minimum wage to get a job credit was lower in 2023, at $1,640.
For low-income workers, knowing about these changes is very important because not getting enough work credits could mean they can’t get Social Security payments when they retire.
3. Earnings Limits and Social Security Benefits
Once a person has hit full retirement age, they can make as much money as they want while still getting full Social Security benefits. This policy has not changed. But things are different for people who haven’t hit full retirement age yet.
People who make more than a certain amount of money will start to lose some of their Social Security payments. Once they hit full retirement age, these benefits will be restored. However, if their income is higher than the limit, their Social Security payments may be cut by a large amount until then.
Every year, the limit on how much someone can earn before this cut takes effect is changed to keep up with inflation. The most you can earn in 2024 is $22,320. The cap for 2025 has not been announced yet, but it is likely to go up, letting people make more money without losing their benefits. These changes are good because they allow workers to get bigger paychecks while still getting perks.
4. Full Retirement Age Adjustment
People who are getting close to retirement will be affected by another big change coming in 2025. A little later in the future, people will be able to claim full Social Security payments without having to pay any penalties.
People who turn 66 in 2024 can start getting all of their benefits at 66 years and 8 months. It will take until a person is 66 years and 10 months old before they can get their full benefits, though. That person will turn 66 in 2025.
Even though the difference may not seem like much, people who file for benefits before this age will have to pay monthly fines that will lower the amount of Social Security benefits they get. The law that set up this gradual rise in the full retirement age was passed in 1983. Its goal was to help Social Security’s finances by raising the retirement age gradually over time.
5. Increase in the Income Subject to Social Security Tax
People with a lot of money will have to deal with a change that they might not like. The most money that will be taxed by Social Security is going to go up in 2025.
At the moment, Social Security taxes are only taken out of pay up to a certain level. This limit will be $168,600 in 2024. The cap will go up in 2025, though, because it is tied to inflation.
As a result, people who make more than this amount will have to pay more in Social Security taxes, which will cause their tax bill to be bigger.