The year 2024 is coming to a close quickly, and in the coming year, many changes will be made to Social Security. Some are for retired people who are already getting Social Security, while others are for people who are still working or who will soon start getting benefits.
Most of them have something to do with inflation. Make sure you do not miss any of these five changes to Social Security in 2025.
Social Security changes beneficiaries should be aware of in 2025
A new cost of living adjustment (COLA) increase will impact monthly checks
The cost-of-living adjustment, or COLA, for people who get Social Security was set at 2.5%, and it will start with payments in January 2025. The most recent data, from October, shows that the average monthly Social Security benefit for a retired worker was $1,925.46.
This means that after the COLA goes into effect, the average will be around $1,974. It is important to note that the COLA increase happens every year so that people who get it can keep up with inflation and still have enough money to pay their bills.
The Social Security benefit formula will change in less than 2 weeks
They will change the bend points they use, but they will not change the formula for Social Security benefits. There are three main multipliers that are used to figure out Social Security benefits: 90%, 32%, and 15%.
Then, your monthly average wages are put into a formula that takes the average of your 35 best years of earnings, taking inflation into account. The bend points are the amounts of money that these percentages apply to.
They change every year, but they stay the same. For people who become eligible for the first time in 2025, the formula used to figure out their average indexed monthly earnings (AIME) is:
- 90 percent of the first $1,226.
- 32% of the total between $1,226 and $7,391.
- 15% of any AIME over $7,391.
Maximum monthly checks could reach up to $4,995
Because of changes in inflation, the biggest amount of money that Social Security can pay out is going up. If someone retires at the full age of 67 in 2025, they will get the most money from Social Security, $3,918 a month.
If they choose to wait until age 70, they could get up to $4,995. But because most people do not start getting Social Security at their exact full retirement age, think about this:
- The maximum monthly compensation for someone retiring at 62 in 2025 will be $2,778.
- The maximum monthly benefit at age 70 will be $4,995.
Social Security contribution and benefit base will also change
The contribution and benefit base will rise from $168,600 to $176,100 in 2025, which means that this change will affect both people who are working now and people who will soon start getting monthly benefits.
People often call this amount the “taxable maximum earnings” because only this much is taxed by Social Security at a rate of 6.2%. Both employers and employees must pay this tax.
It is the most money that can be used to figure out AIME, which I talked about in the section on formulas. It also has to do with figuring out the benefit.
The maximum amount you can make while receiving Social Security benefits
Last but not least, the limits on the current earnings test will be changed in less than two weeks. It is important to know that if you have not reached full retirement age yet, you can only have a certain amount of earned income while still getting Social Security benefits. There are also two parts to the earnings test:
- You can receive up to $1,950 in monthly earnings as an exemption if you reach full retirement age after 2025. Above that amount, $1 in benefits is withheld for every $2 in excess earned income.
- You can receive a $1 withholding for every $3 earned over $5,180 per month if you reach full retirement age in 2025.
Remember that any money taken away because of the earnings test will add to your benefit when you reach full retirement age, so it is not really lost.
