Ready to Understand the 4 Potential Social Security Shifts in 2025? 🔢
If you're among the millions of older Americans receiving Social Security, or even if you're years away from eligibility, it's crucial to stay updated on the program's changes in 2025. October usually sees the Social Security Administration announcing key adjustments set to take place in January. We're now almost at that point, and with January knocking at the door, it's not too late to review how Social Security will alter in the new year.
In this piece, we'll explore four major updates you need to be aware of.
1. A 2.5% boost to benefits
Social Security benefits receive an annual Cost-of-Living Adjustment (COLA) to help seniors maintain their purchasing power in the face of inflation. In 2025, the COLA will amount to a 2.5% increase, bumping the average monthly benefit of $1,927 to approximately $1,976.
However, there's a caveat. The Medicare Part B standard monthly premium is also escalating in 2025, causing a slight decrease in seniors receiving both benefits due to the automatic deduction of Part B premiums from Social Security checks.
2. A higher earnings-test limit
Working in retirement can be a great way to boost income and keep active. Social Security allows employed retirees to earn wages without impact on benefits once they reach Full Retirement Age (FRA). Until reaching this milestone, workers should be cautious of earning limits, which can lead to partial suspension of benefits. In 2025, the earnings-test limit will rise from $22,320 to $23,400. Beyond this, benefits will be reduced by $1 for every $2 of excess earnings.
3. An increased Social Security tax for higher earners
Employees already notice a portion of their paychecks going towards funding Social Security, under the heading of FICA. The taxable wage cap for Social Security purposes increases every year, causing higher earners to pay more into the system. In 2025, the wage cap escalates from $168,600 to $176,100, resulting in an additional $7,500 of income being taxed for Social Security. Intelligent financial planning can help offset this added tax burden.
4. A more challenging path to qualify for benefits
Contrary to common belief, Social Security benefits aren't automatic upon reaching a specific age. The earning of these benefits is tied to paid taxes on a sufficient income throughout one's career. In 2025, the value of a work credit will rise from $1,730 to $1,810. This bump in required income means those aiming for benefits may face increased challenges in achieving the necessary 40 lifetime work credits to be eligible.
By preparing in advance, you can navigate the changes coming to Social Security in 2025 with minimal surprises.
In light of these upcoming changes, it's essential to consider how these adjustments might impact your retirement finance planning. With the 2.5% increase in benefits, you may still see a slight reduction due to the rise in Medicare Part B premiums.
Moreover, if you plan to work in retirement, the increased earnings-test limit can provide more leeway without affecting your benefits as dramatically as before. Nonetheless, higher earners should anticipate an increased Social Security tax due to the boost in the wage cap for Social Security purposes.
