Prepared for 2025, Potentially Pivotal Social Security Alteration Apart from the COLA, Notably Significant
Prepared for 2025, Potentially Pivotal Social Security Alteration Apart from the COLA, Notably Significant
The secret's been out for quite some time about a significant Social Security alteration scheduled for 2025. In October, the Social Security Administration (SSA) announced a 2.5% adjustment in living costs (COLA) for the upcoming year.
If you're currently receiving or about to start receiving Social Security benefits, you likely know about the COLA adjustment. But there are more Social Security modifications on the horizon for 2025 as well. One of these changes is arguably the most significant apart from the COLA.
Adjustments in the upcoming year
One minor modification to Social Security in the coming year is related to office closures during the COVID-19 pandemic. Local Social Security offices reopened in April 2022, but the SSA advised people requiring assistance to book appointments in advance. Starting January 6, 2025, this suggestion will become a necessity – at least in most instances. Field office assistance will require prior scheduling.
High earners will be impacted by another Social Security change. The maximum annual income subject to the Social Security portion of the FICA tax will increase from $168,600 in 2024 to $176,100 in 2025.
If you start receiving Social Security retirement benefits before reaching your full retirement age (FRA) and continue to work, the SSA may temporarily reduce your benefits if your earnings exceed a certain limit. In 2024, a deduction of $1 for every $3 earned above $22,320 was applied for those under their FRA for the entire year. During the year they reach their FRA, a deduction of $1 for every $3 earned above $59,520 was implemented.
Starting in 2025, these earnings limits for early retirees working will increase. The new limit for those under their FRA will be $23,400, while the new limit for those reaching their FRA will be $62,160.
The FRA has increased by two months each year for several years. It will increase by another two months in 2025, affecting those born in 1958 and 1959; for those born in 1960 or later, the FRA remains 67.
The other major Social Security alteration
While the COLA impacts all Social Security beneficiaries, the changes mentioned earlier only affect a select group. Not everyone will need assistance from a Social Security field office next year, and not everyone is impacted by the increased maximum taxable earnings. Additionally, not everyone retires early, and not everyone who does continues to work. Only those born in 1958 or 1959 will be impacted by the FRA increase.
However, another significant Social Security alteration is on the horizon for 2025. I'd argue it's the most important change other than the COLA.
To qualify for Social Security retirement benefits, a person must earn at least 40 credits (the SSA terms these credits "quarters of coverage"). A maximum of four credits can be earned per year. In 2024, an individual needed to earn $1,730 to receive one credit. In 2025, this threshold for receiving one credit will increase by $80 to $1,810.
This change might not seem crucial. Most people might not even notice it. However, it will affect every worker who hasn't already qualified for Social Security retirement benefits. As the SSA explains on its website: "We cannot pay benefits to you if you don't have enough credits." I'd say that any change in the criteria for qualifying for Social Security benefits is a major deal.
Looking beyond 2025
It's a given that major Social Security modifications will occur beyond 2025. Why? Social Security is forecast to become insolvent in 2035 unless adjustments are made. Severe benefit reductions will be required without mechanisms to boost the system's revenue. A 2.5% COLA and an $80 increase in the threshold for earning one Social Security credit will pale in comparison to the changes necessary to prevent this disaster.
If you're planning for your retirement, the increase in the threshold for earning one Social Security credit from $1,810 in 2025 to future amounts could significantly impact your eligibility for retirement benefits. Moreover, the ongoing financial challenges faced by Social Security necessitate broader modifications beyond 2025 to ensure its long-term sustainability, which may involve significant alterations to the benefits structure.