Title: Gargantuan Shifts in Social Security to Unfold in 2025
2025 is fast approaching, and it's crucial to understand how personal finance will be affected in the new year, particularly with regards to Social Security. Although there are no significant policy changes to Social Security, there are still some key adjustments for both retirees and workers that you should be aware of.
Each year, inflation-based changes and changes dependent on wage growth occur, affecting various aspects of Social Security benefits and taxes. Let's delve into these changes:
2025 COLA
The upcoming change that will significantly impact Social Security in 2025 is the annual Cost of Living Adjustment (COLA). Inflation has subsided considerably, resulting in a smaller increase compared to previous years. However, Social Security beneficiaries will still receive a raise of 2.5% for 2025, which will take effect during the December 2024 payment, eventually reflected in the payment you receive in January 2025. For benefit recipients with an average monthly benefit of $1,900, this translates into an additional $48 per month in 2025.
Maximum Social Security Benefit
A change affecting both current and future retirees is the increase in the maximum possible Social Security benefit. For someone retiring at full retirement age in 2025, the maximum benefit will be $4,018 per month, a rise of $196 compared to the previous year. Those who choose to delay their retirement can further enhance their benefits. In 2025, the maximum possible benefit for someone retiring at age 70 will be $5,108 per month, which translates into nearly $61,300 per year in inflation-adjusted retirement income.
Taxable Maximum Earnings
Current workers should also pay attention to the change in the maximum amount of earned income subject to Social Security tax. This figure is based on wage growth, not inflation, and in 2025, it will rise to $176,100. Any income earned up to this limit will be subject to Social Security tax at a rate of 6.2% each for employees and employers.
Earnings Test Thresholds
The earnings test limits for those who will reach full retirement age after the end of the year will be increased in 2025. For individuals who reach their full retirement age following the year, the monthly limit will be $1,950 per month, an increase of $90 compared to 2024. For earnings above this threshold, $1 in benefits will be withheld for every $2 in excess earned income. The annual earnings test limit will also see an increase, with the new figure being $23,400.
Beyond 2025, there may be more significant changes to Social Security, depending on factors such as expected depletion of funds and incoming government policies.
In light of the impending COLA for 2025, it's essential for retirees to understand that despite inflation subsiding, they will still receive a 2.5% increase in their Social Security benefits, amounting to an extra $48 per month. Moreover, the maximum possible Social Security benefit for individuals retiring at full retirement age in 2025 will increase to $4,018 per month, offering a higher income source for both current and future retirees.
