Life brings both joyous moments and challenges that can significantly impact us. While change is a natural part of life, some individuals may find it harder to adapt than others. Just as everyone experiences personal changes, Social Security—the federal agency responsible for distributing retirement, survivor, disability, and SSI benefits—also undergoes adjustments.
However, not all changes are unfavorable; in fact, the coming year may bring positive developments for Social Security. If you’re eligible for retirement benefits, it’s important to stay informed about the changes coming in 2025 and how they may influence the paychecks of retirees.
Increases
Social Security payments generally receive an annual cost-of-living adjustment (COLA) to help retirees maintain their purchasing power as living costs rise. However, there’s no guarantee of a COLA every year; it depends on inflation from one year to the next.
Fortunately, 2022 experienced a notably high inflation rate. As of 2024, living expenses have remained relatively stable, suggesting that an increase in Social Security benefits is likely for 2025.
The exact amount of this increase is still uncertain, as the COLA for January is calculated based on inflation data from the previous third quarter.
According to the nonpartisan Senior Citizens League, the projected COLA for 2025 is estimated to be 2.57%. While this is lower than the 3.2% increase beneficiaries received at the start of 2024, it still represents a positive adjustment.
Maximum Payment
Not every worker pays Social Security taxes on their entire salary; thus, higher earners only contribute to the program up to an annual wage cap, which is adjusted each year. However, there is also a limit to the monthly benefits Social Security will disburse.
In 2024, the maximum monthly benefit for individuals who claim at full retirement age is $3,822, while those who choose to delay their benefits can receive up to $4,873.
It’s crucial to note that only beneficiaries who meet the requirements for full retirement age, work history, and Social Security contributions can qualify for these maximum payments. To receive the $4,873 amount, retirees must have contributed based on their maximum taxable earnings.
Additionally, retirees can claim $2,710 if they take benefits before reaching full retirement age, with the average monthly payment being around $1,900.
Earnings Test Limit
Contrary to common belief, it is possible to work while collecting Social Security benefits. However, if you’re receiving benefits and haven’t reached full retirement age, your benefits may be reduced if your earnings exceed what is known as the earnings-test limit.
For this year, if you haven’t reached full retirement age but will by year-end, the earnings test limit is set at $22,320, or $59,520 if you reach full retirement age within the year.
Next year, these limits are expected to rise, allowing you to earn slightly more without worrying about reductions in your Social Security benefits. Importantly, the benefits withheld due to exceeding the earnings-test limit are not permanently lost; they will be added back into your monthly payments once you reach retirement age. Remember, changes can have both positive and negative implications, depending on the circumstances.
