anticipated adjustments to Social Security in 2025: an overview of likely developments
Although Social Security has existed for close to a century, its regulations aren't always fixed. In fact, Social Security is expected to undergo several significant transformations in the forthcoming year.
These modifications won't just influence retirees who are currently receiving benefits; they could also impact you, even if retirement is still a distant prospect.
Here are the updates you should be aware of in 2025:
1. Social Security benefits will get a 2.5% increase
Yearly, Social Security benefits are entitled to an automatic cost-of-living adjustment, or COLA. The purpose of COLAs is to protect recipients' purchasing power as expenses rise due to inflation.
In 2025, Social Security benefits will surge by 2.5%. Actually, this is the smallest COLA in years.
However, it's not all bad news. Since inflation is decreasing, seniors might discover that although their Social Security rise decreases, their expenses for things like groceries, fuel, utilities, and more go down as well.
2. Social Security's earnings-test limit is going up
Seniors on Social Security can work and earn an income from that job. After reaching full retirement age (which is 67 if you were born in 1960 or later), you can earn any income from a job without a portion of your monthly Social Security payments being withheld.
But if you're working and receiving benefits prior to full retirement age, you'll need to ensure your income doesn't exceed the earnings-test limit that applies to you.
The general Social Security earnings-test limit in 2025 is $23,400 (up from $22,320 in 2024). For every $2 you earn above that limit, $1 in Social Security will be withheld.
However, if you'll reach full retirement age at any point in 2025 but haven't reached that age at the start of the year, then you'll have a much higher earnings-test limit. In that case, it's $62,160 (up from $59,520 in 2024). You'll then have $1 in Social Security withheld for every $3 you earn above that limit.
You should also be aware that withheld benefits aren't lost forever. If you exceed the earnings-test limit in 2025, your initial checks will be smaller. But once you reach your full retirement age, your checks should increase as the withheld benefits are repaid to you.
3. Social Security's wage cap is increasing
Not all income is subject to Social Security taxes every year. A wage cap is set to determine how much money is taxed to fund the program.
In 2025, that cap is $176,100, up from $168,600 in 2024. Therefore, if you earn $200,000 a year, you won't pay Social Security taxes on the last $23,900 of your income.
This also means that people earning $176,100 in 2025 and millionaires will have the same Social Security tax burden. Some lawmakers think this is unfair and are seeking to modify or even eliminate the wage cap. However, doing so could be complicated since Social Security's maximum monthly benefit is connected to a limit on taxable wages.
4. Social Security's work credits will have a higher earnings threshold
To be eligible for Social Security as a retiree, you need to earn 40 work credits throughout your lifetime, with a maximum of four credits a year. In 2025, a single work credit will be worth $1,810, up from $1,730 in 2024. So if you want four work credits for the year, you'll need to ensure your wages total at least $7,240.
This modification usually won't affect full-time workers. However, part-time workers or gig workers should keep this in mind.
You might be affected by one or more of these Social Security changes in 2025. That's why it's essential to be aware of these updates in advance—and adjust your financial plans if necessary.
For instance, if you're a higher earner, you might want to find ways to lower your taxes to compensate for the higher amount of income subjected to Social Security taxes. And if you're retired, it helps to know how much flexibility you have to earn income in the new year before your benefits are impacted.
The 2.5% increase in Social Security benefits might not seem substantial, but considering the decline in inflation, seniors might find that their expenses for essentials like groceries and utilities also decrease, leading to a balanced financial situation.
With Social Security's earnings-test limit increasing to $23,400 in 2025, individuals who are still working and receiving Social Security benefits before reaching their full retirement age should carefully monitor their income to avoid having a portion of their payments withheld.
