Change can be scary, especially when it’s unexpected or unwelcome. However, change is a constant part of life and can sometimes lead to positive outcomes. This is true for Social Security, which undergoes yearly policy updates to better serve both recipients and contributors. In 2025, several potential changes to Social Security could benefit recipients. Here are three such positive changes expected next year.
Expected Increase in Social Security Benefits
Social Security benefits typically receive an annual cost-of-living adjustment (COLA) to help maintain their purchasing power as living expenses rise. This adjustment is not guaranteed every year as it depends on the inflation from the previous year.
Despite the high inflation rates in 2022, inflation has been more manageable in 2024. As a result, Social Security benefits are anticipated to increase in 2025. The exact amount is still uncertain since the COLA is based on inflation data from the third quarter of the previous year.
The Senior Citizens League, an advocacy group for seniors, forecasts a 2.57% COLA for 2025. While this is less than the 3.2% increase in 2024, it still represents a meaningful rise in benefits.
Increase in Maximum Monthly Benefit
Social Security taxes are not applied to all wages. There is a cap on the wage amount subject to Social Security taxes, which adjusts annually, and there is also a cap on the benefits seniors can receive. For 2024, the maximum benefit for someone retiring at full retirement age is $3,822 per month. This amount is expected to increase in 2025.
Only high earners who have contributed the maximum possible amount for 35 years qualify for Social Security’s maximum monthly benefit. If you plan to retire in 2025 and have consistently contributed the maximum amount, you can look forward to a higher maximum monthly benefit.
Higher Earnings-Test Limit
You can work while collecting Social Security benefits, but if you are below full retirement age and your earnings exceed a certain threshold, known as the earnings-test limit, a portion of your benefits may be withheld.
In 2024, the earnings-test limit is $22,320 for those below full retirement age. For individuals who will reach full retirement age during the year, the limit is $59,520. These limits are expected to increase in 2025, allowing beneficiaries to earn more without worrying about withheld benefits.
Importantly, any benefits withheld due to exceeding the earnings-test limit are not permanently lost. These withheld benefits will be added back into your monthly payments once you reach your full retirement age.
Social Security undergoes yearly changes to better serve recipients and contributors. In 2025, several positive changes are expected, including an increase in Social Security benefits, a higher maximum monthly benefit, and a higher earnings-test limit. These changes aim to improve the quality of life for beneficiaries, ensuring they receive the best conditions adapted to the times we live in.
FAQs
1. What is the COLA for 2025?
The exact COLA for 2025 is not yet known, but it is forecasted to be 2.57%.
2. How is the maximum monthly benefit determined?
The maximum monthly benefit is determined by your earnings history and the cap on wages subject to Social Security taxes.
3. Can I work while receiving Social Security benefits?
Yes, you can work while receiving Social Security benefits, but a portion of your benefits may be withheld if you earn above the earnings-test limit.
4. What happens to benefits withheld due to the earnings-test limit?
Any benefits withheld due to the earnings-test limit will be added back into your monthly payments once you reach full retirement age.
5. How often does Social Security update its policies?
Social Security updates its policies annually to better serve recipients and contributors.