One of the most talked-about topics at the end of the year is Social Security benefits. The Social Security Administration runs the program, which is often called a “lifeline” for the millions of retirees who depend on it. Because of this, both politicians and beneficiaries talk a lot about how to keep it going and make changes to it.
A lot of talk lately has been about how the program will change in 2025, as it does every year to keep up with the times, and how these changes will affect people who get help from the program.
Benefits are rising by 2.5%
There will be a 2.5% increase in Social Security benefits in January 2025. This is good news because it means inflation is going down, but the 3.2% increase at the beginning of 2024 makes this year’s increase seem pretty small.
It will also cost an extra $10.30 a month to have Medicare Part B in 2025. When you add in the 2.5% COLA, the average retiree will get an extra $49 a month. However, most Medicare recipients will only get an extra $39 a month after the Medicare increase. Still, inflation is not going to rise as much as it did in 2024, so this rise may be enough to weather the storm.
You have more freedom to get a job and get benefits at the same time.
It’s possible to get benefits while working, though most people don’t know this. However, if you decide to do that, your Social Security benefit could go down depending on your age. The earnings test limit is the name for this cut.
There’s more leeway to earn money from a job while collecting benefits
It is now $23,400, up from $22,320 in 2024, for people who haven’t reached their full retirement age (67 for people born in 1960 or later). For every two dollars you earn above that amount, your benefits will go down by one dollar.
The upper limit for people who reach full retirement age will go up from $59,520 in 2024 to $62,160 in 2025. When you earn more than that, the benefits go down by one dollar for every three dollars you earn.
Once they reach full retirement age, there are no more limits, and the amounts that were withheld will be recalculated to show how much money they will get in benefits.
Higher earners are looking at a larger Social Security tax bill
Paycheck taxes pay for most of Social Security, so it makes sense that the more you earn, the more you pay, up to a point. Because the program isn’t scalable, there is a limit on how much people can contribute to taxes. This limit is called the wage cap, and it will go up from $168,600 in 2024 to $176,100 in 2025.
Most workers won’t have to worry about this change because their wages don’t go over the limit. But people who make a lot of money will have to pay more taxes, which may not be good news. To be exact, an extra $7,500 in wages will be taxed by Social Security.
At a tax rate of 12.4%, that’s an extra $930 in taxes. But people who get paid a salary will only feel half of that hit because their employers will pay the other half.
Thankfully, this also means that the highest amount of money retirees can get will go up from 2024 to 2025. The SSA calculates benefits based on people who have worked at least 35 years and waited until they were 70 years old to apply. In 2025, the most they can get is $5,108, up from $4,873 in 2024.
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