Social Security Changes Coming in 2025
If you are one of the roughly 80 million Americans who currently receive Social Security, there are several changes that take effect on January 1st of the new year that you need to be aware of.
Good News for Retirees: Yes, Your Payments Are Going Up
This is the best news, considering the Biden economy and rampant inflation that has eaten up about 20% of our incomes.
The Cost-of-Living Adjustment (COLA) for 2025 is meager, at 2.5% – but as retirees know, every little bit helps. Depending on your current payments, this increase could be anywhere from $50 to $1,975 per month.
Bad News for Workers: Yes, Your Payments Could Go Up
Look folks, the money for Social Security has to come from somewhere – and that somewhere is the payroll taxes of workers – currently at 12.4%.
The good news is this tax has an upper income limit. The bad news is, that limit is going up. Where previously workers paid the 12.4% tax on income up to $168,000, they will now pay the tax on income up to $176,000.
Keep in mind, this only affects roughly the top 6% of payroll tax payers, but it is very important for our self-employed entrepreneurs.
More Good News: Maximum Monthly Benefits Are Going Up
As most people know, you can retire at 62. However, if you wait until 70, you get a bigger monthly check.
The new maximum payment is $4,018.
Early Filer Benefit Withholding Thresholds and Income Thresholds for Disabilities Going Up
For early filers: “Early filers who didn’t reach their full retirement age in 2024 had $1 in benefits withheld for every $2 in earned income above $22,320, which works out to $1,860 per month. This year, early filers who won’t hit their full retirement age can earn up to $23,400 ($1,950 per month) without any withholding kicking in.
“The withholding threshold is markedly different for workers who will reach their full retirement ages at some point in 2025. For this category of early filers, $1 in benefits can be withheld for every $3 in earned income above $62,160 ($5,180 per month) in the current year. This is up from $59,520 ($4,960 per month) in 2024.”
In simple terms – you can earn more outside income without the penalty this year.
On the disabilities front, workers will now be able to earn $1,620 in outside income without penalties.
Both of these increases are quite meager, but as all fixed-income recipients know, every dollar helps.
Benefit Work Credits Unfortunately Going Up
To vastly oversimplify a complicated system, Social Security essentially works by attributing credits to workers based on their income. If you earn a set amount, it counts as a “credit,” of which you can only earn four per year, and you need 40 credits to eventually receive Social Security in retirement.
Going forward, the “cost” of those credits is going up: Previously, you earned a credit for bringing in $1,730 in income. This year, that number is bumped up slightly to $1,810.
So, you’ll need to earn at least $7,240 in 2025 to be credited (sorry) the maximum number of credits.
Social Security Fast Facts
– Most Social Security recipients are not actually retirees. Over 53% of recipients were between the ages of 18 and 64.
– 55% of Social Security recipients are women.
– In 1970, there were roughly 25 million Americans receiving Social Security. Today that number is well over 70 million.
– In 2023, Social Security paid out $1.35 trillion.
– Social Security spending accounts for roughly 22% of the total federal budget.
These changes may seem small, but they can have a significant impact on the lives of Social Security recipients and workers alike. Stay informed and be prepared for the adjustments coming in 2025.
