Prepare for a series of changes that could significantly affect you—whether you’re retired or still working.
Although Social Security has existed for many years, its rules are not set in stone. This adaptability is necessary.
Social Security must adjust to inflation in various ways. In 2025, several important changes are likely to occur, affecting both retirees and workers. Here are some key adjustments to be aware of now.
1. Cost-of-Living Adjustment
Social Security benefits are eligible for automatic cost-of-living adjustments (COLAs). These adjustments aim to help beneficiaries maintain their purchasing power as inflation increases living costs.
At the beginning of 2024, Social Security benefits increased by 3.2%. However, next year’s COLA may not be as generous. Early estimates suggest a 2.63% increase, but this could change depending on inflation trends in the third quarter.
Social Security recipients should prepare for a smaller COLA in 2025. This may involve adjusting your budget to cut expenses or considering gig work to earn extra income.
2. Higher Earnings-Test Limit
Seniors receiving Social Security can also earn money from a job. However, those who have not yet reached full retirement age should be aware of income limits. Exceeding the annual earnings-test limit can result in some benefits being withheld (though these benefits are repaid once full retirement age is reached).
In 2024, the earnings-test limit is $22,320, while for those reaching full retirement age by the year’s end, it is $59,520.
In 2025, the earnings-test limit is expected to increase, allowing you to earn more without negatively affecting your benefits. If you plan to increase gig work or part-time hours, it may be beneficial to wait until January to do so.
3. Increased Wage Cap
Social Security is primarily funded through payroll taxes. However, not all income is subject to Social Security taxes.
Each year, a wage cap is set to determine the earnings subject to these taxes. Currently, the cap is $168,600, but it is expected to rise in 2025.
If you don’t anticipate earning more than $168,600 in 2025, there’s no need for concern. However, higher earners should consider consulting a tax professional to explore strategies for reducing their overall tax burden. If you’re already maximizing this, budget carefully to account for a potentially larger portion of your paycheck going to Social Security taxes next year.
4. Higher Earnings Requirement for Work Credits
To qualify for Social Security benefits in retirement, you generally need to earn a certain amount and pay taxes on it throughout your career. Although there are ways to collect Social Security without working, such as through spousal benefits, if this isn’t an option, you’ll need to ensure you earn enough to qualify for benefits in the future.
To do this, you need to accumulate 40 work credits over your lifetime, with a maximum of four credits per year.
Currently, each work credit is worth $1,730, but in 2025, you’ll likely need to earn more per credit. If you’re a part-time worker trying to qualify for Social Security, pay attention to the updated earnings requirement per credit. You may need to increase your hours to ensure you earn the four credits you need in the coming year.
The upcoming changes to Social Security in the new year won’t just impact retirees; they could affect many workers as well. It is essential to stay informed about Social Security developments so you can adjust your plans accordingly.
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