Social Security payouts are one of the most talked-about topics at the end of the year. The Social Security Administration‘s program is commonly described to as a lifeline for the millions of retirees who rely on it, and as such, its survival and revisions are hotly debated by both lawmakers and recipients.
Something that has been highly discussed recently is the idea that the program will change in 2025, as it does every year to stay up with the times, and how these changes would impact beneficiaries.
1. Benefits are rising by 2.5%
Social Security benefits will increase by 2.5% in January 2025, which seems like good news because it suggests inflation is slowing, but when contrasted to the 3.2% increase at the start of 2024, this year’s gain feels modest.
Additionally, Medicare Part B rates will increase by $10.30 per month in 2025. For the average retiree, the 2.5% COLA amounts to around $49 more each month, but when you throw in the Medicare increase, most recipients will only see about $39 more in their pockets. Having said that, inflation is predicted to fall even further than in 2024, so this boost may be sufficient to weather the storm.
2. There’s more leeway to earn money from a job while collecting benefits
Many people are unaware that they can get benefits while working. The difficulty is that, depending on your age, choosing to do so may result in a reduction in your Social Security payout. This reduction is referred to as the earnings test limit.
There are two earnings test restrictions that vary depending on your age. For seniors who have not achieved their full retirement age (67 for those born in 1960 or after), the cap has increased to $23,400 from $22,320 in 2024. If you make more than that amount, your benefits will be reduced by one dollar for every two dollars earned.
Those who reach full retirement age in 2024 will see their maximum climb to $62,160 from $59,520. Anything earned above that threshold reduces the benefits by one dollar for every three dollars earned. There are no more limits after reaching full retirement age, and the withheld amounts will be reassessed to determine the benefits they will get.
3. Higher earners are looking at a larger Social Security tax bill
Given that payroll taxes provide the majority of Social Security financing, it seems to reason that the more you earn, the more you pay, up to a certain point. Because the program is not scalable, there is a restriction on tax payments known as the wage cap, which will rise from $168,600 in 2024 to $176,100 by 2025.
Most workers will be unaffected by this adjustment because their incomes do not exceed the ceiling. However, for high earners, this means that more of their income would be taxed, which may not be good news.
Specifically, an additional $7,500 in salary will be liable to Social Security tax. At the 12.4% tax rate, that amounts to an additional $930 in taxes. Salaried employees, on the other hand, will bear only half of the cost because their employers will fund the other half.
Fortunately, this means that the maximum benefit that retirees can receive in 2025 will be higher than in 2024. Those who have worked the minimum of 35 years required by the SSA to compute benefits and have waited until the age of 70 to claim will be entitled to a maximum payment of $5,108 in 2025, up from $4,873 in 2024.
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