Important updates on Social Security adjustments for retirees in 2025:
Social Security is in a state of crisis, and 2025 is shaping up to be a pivotal year for the program. With the Social Security trust fund projected to run dry by 2033, as per the 2024 Board of Trustees' report, it's time for some major reforms.
Many changes are happening in 2025 that could make a significant impact on your Social Security benefits. Here are five important changes you need to know:
1. A boost in benefits for everyone
You might have noticed a slight increase in your monthly benefit starting January. That's because the Social Security Administration has implemented a cost-of-living adjustment (COLA) of 2.5% for the year. Every American eligible for Social Security, whether they've started receiving benefits or not, will get this benefit.
The COLA isn't only for 2025, either. The SSA makes this adjustment every year based on inflation in the third quarter of the previous year to keep retirees' benefits proportional to the rising costs of goods and services.
2. A significant increase for 3.2 million retirees
While everyone will see a slight boost from the annual COLA, 3.2 million people will benefit more from the new Social Security laws signed by President Biden in January. The Social Security Fairness Act repeals the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Both of these were laws that reduced benefits for retirees with uncovered pensions, like those from government, railroad, nonprofit, and teaching sectors.
As a result, around 3.2 million people will see a notable increase in their benefits starting from 2025. Those who have already claimed Social Security will receive lump-sum payments for unpaid retroactive benefits beginning in January 2024. Anyone impacted who hasn't started benefits yet will also get a bump in future payments.
3. More wage income will face taxation
Most retirees don't work past retirement, but the rising cap on wages subject to Social Security taxation is still important. In 2025, any earnings up to $176,100 are subject to Social Security taxes, an increase from $168,600 in 2024.
For those still working, a higher cap on wages subject to Social Security taxes could help extend the life of the trust fund. Additionally, it allows retired workers to boost their monthly benefits in the future as they replace older earnings with new ones in the calculation of their benefits. With the 2024 increase, the maximum possible Social Security benefit went up to $5,108. This amount will be even higher in 2025 due to the new wage cap.
4. Early retirees can earn more without penalty
While the earnings cap might be out of reach for many seniors working in retirement, there's a much lower limit that can negatively impact your benefits. Thankfully, this limit will also increase in 2025.
Beneficiaries who haven't reached their full retirement age may be subject to the retirement earnings test. If your earnings exceed a certain threshold, the Social Security Administration will reduce your annual benefits by $1 for every $2 made above it. For 2025, that threshold is $23,400, up from $22,320 last year. Beneficiaries reaching full retirement age in 2025 will have a higher threshold, $62,160, and will only see their benefits reduced by $1 for every $3 earned above the cap.
5. Higher Medicare premiums
Many Social Security beneficiaries start using Medicare benefits when they turn 65, the age of eligibility for the government-subsidized health insurance. Those collecting benefits while on Medicare have their Part B premiums deducted from their monthly checks before they receive the rest.
In 2025, the Medicare Part B premium for most retirees increased from $174.70 per month to $185 per month, representing a 5.9% increase that is notably higher than the 2025 COLA. As a result, retirees may experience a smaller-than-expected rise in their monthly payments for 2025.
Additional changes could be forthcoming
Social Security reform is a pressing issue in Washington, with presidential candidates discussing potential changes during the 2024 election. Some proposed changes, such as those proposed by President Trump, could have drastic repercussions for those receiving benefits today and those hoping for the program to last well into their future.
While it's impossible to predict the future of Congressional reforms, one thing is clear: they need to make significant changes soon to ensure the ongoing viability of Social Security for retirees.
- With the cost-of-living adjustment (COLA) of 2.5% implemented in 2025 by the Social Security Administration, all eligible retirees, whether they have started receiving benefits or not, will receive a boost in their monthly benefits.
- Significant increases will be observed in the benefits of 3.2 million retirees starting from 2025 due to the repeal of the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) by the Social Security Fairness Act that was signed by President Biden in January.
- To help extend the life of the Social Security trust fund, the wage cap for Social Security taxation will increase in 2025 to $176,100, enabling more earned income to be taxed.
- The earnings limit that may negatively impact benefits for beneficiaries who haven't reached full retirement age will increase in 2025. For those yet to reach full retirement age in 2025, the threshold for the retirement earnings test will be $62,160, compared to $23,400 for those under that age.
- In 2025, the Medicare Part B premium for most retirees will increase from $174.70 per month to $185 per month, resulting in a smaller-than-expected rise in some retirees' monthly payments in 2025.