As the new year begins, changes will be made to Social Security. While these changes will happen, some people will like them more than others. This is especially scary if, like more than 40% of baby boomers, your benefit is or will be your main source of income when you retire. Staying up to date on the program’s ups and downs will make the change go more smoothly and make retirement more comfortable.
These are some changes that are likely to happen.
1. The COLA is increasing
Benefits will go up by 2.5% in January because of the cost-of-living increase (COLA). If you are retired and making a little over $1,900 a month, that is an extra $50 a month.
While this is the smallest COLA since 2021 and a lot less than the big jumps of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024, there is some good news: it means that inflation is finally going down after the pandemic messed up the economy. Because COLAs are closely linked to inflation, the big jumps that happened when prices were going up quickly make sense. For some background, the Bureau of Labor Statistics says that inflation hit a 40-year high of 9.1% in June 2022. As of October 2024, it had slowed down to 2.6%.
Some seniors may be disappointed by this smaller increase, but the drop in inflation could be a good thing. When prices go down, retirees can buy more with their money, which could make the smaller increase less painful.
2. The Social Security earnings test limits are increasing
Contrary to what most people think, you can work while getting benefits. However, because of something called the “retirement earnings test,” some of your benefits might be held back based on how much you are making. This will only happen while you are younger than your full retirement age (FRA). Once you hit your FRA, you can keep working and get full benefits.
The Social Security Administration (SSA) says there are two different limits based on whether or not you will reach your FRA in 2025. In 2025, these two income caps will go up. This means that you will be able to make more money before your benefits go down.
| Income Limit: 2024 | Income Limit: 2025 | Benefit Reduction | |
| If you will not
reach your FRA in 2025 |
$22,320 | $23,400 | $1 for every $2 over the limit |
| If you will
reach your FRA in 2025 |
$59,520 | $62,160 | $1 for every $3 over the limit |
3. Both the Maximum benefit and the maximum taxable earnings limit are increasing
When the COLA is added to the maximum income, it will go up from $4,873 per month to $5,108 per month for those who are eligible. As usual, to be eligible, you had to wait to start getting benefits until you were 70 years old and had made the most in taxable income for all 35 years before you retire.
This is good news for people who already get the benefit, but it might not be so good for people who want to get it because the highest taxable earnings limit is also going up, which will make things a little more difficult for the average American.
The highest amount of money that is taxed in 2024 is $168,600 a year; anything over that amount is not taxed. In 2025, it will go up to $176,100 a year. For people whose income is between $204,999 and $205,999, their taxes will go up with the new year.
It may seem like bad news, but wages are going up, and the more money that goes into Social Security, the better it will work.