Changes are coming to Social Security with the new year, and while some changes are unavoidable, some will be preferred by program beneficiaries.
This is especially concerning if, like more than 40% of baby boomers, your benefit is or will be your primary source of income in retirement. Keeping up with the program’s ebbs and flows will result in a smooth transition and a more comfortable retirement.
These are a few of the expected changes.
1. The COLA is increasing
Beginning in January, benefits will increase by 2.5% due to the cost-of-living adjustment (COLA). For the average retiree earning slightly more than $1,900 per month, this represents a $50 increase each month.
This is the smallest COLA since 2021 and significantly lower than the large jumps of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024, but on the bright side, it indicates that inflation is finally cooling down after the pandemic wreaked havoc on the economy.
COLAs are directly related to inflation, which explains the dramatic increases during the years when prices were rapidly rising. For context, according to the Bureau of Labor Statistics, inflation reached a 40-year high of 9.1% in June 2022 but has since fallen to 2.6% by October 2024.
While some retirees may be disappointed by the smaller increase, the drop in inflation could be a blessing, as lower prices allow retirees to stretch their dollars further, potentially softening the impact of a more modest adjustment.
2. The Social Security earnings test limits are increasing
Working while collecting benefits is possible, contrary to popular belief. The problem is that, depending on your income, a portion of your benefits check may be withheld due to what is known as the retirement earnings test. This only applies while you are under your full retirement age (FRA); once you reach it, you can continue working and receiving full benefits.
According to the Social Security Administration (SSA), there are two different limits based on whether or not you will reach your FRA by 2025. Both of these income limits will rise in 2025, allowing you to earn more before receiving benefit reductions.
| Income Limit: 2024 | Income Limit: 2025 | Benefit Reduction | |
| If you will not Advertisement
reach your FRA in 2025 |
$22,320 | $23,400 | $1 for every $2 over the limit |
| If you will Advertisement
reach your FRA in 2025 |
$59,520 | $62,160 | $1 for every $3 over the limit |
3. Both the Maximum benefit and the maximum taxable earnings limit are increasing
Once the COLA is applied to the maximum benefit, the beneficiaries who qualify will see their monthly benefit increase from $4,873 to $5,108. To qualify for benefits, you must have waited until you turned 70 and earned the maximum taxable earnings limit for all 35 years considered by the SSA when you retire.
While this is good news for those who receive the benefit, it may not be so good for those who want to do it because the maximum taxable earnings limit is also increasing, making things a little more complicated for the average American.
In 2024, the maximum taxable earnings limit is $168,600 per year; anything above this amount is not taxed; in 2025, it will rise to $176,100 annually. This means that for those earning between 2024 and 2025, their taxes will rise with each new year.
Although it may appear to be bad news, salaries are rising, and the more money paid into Social Security, the better the system will function.
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