One of the most talked-about things at the end of the year is Social Security benefits. The Social Security Administration runs the program, which is often called a “lifeline” for the millions of retirees who depend on it. Because of this, both lawmakers and beneficiaries talk a lot about how to keep it going and make changes to it.
A lot of talk lately has been about how the program will change in 2025, as it does every year to keep up with the times, and how these changes will affect people who get help from the program.
Benefits are rising by 2.5%
There will be a 2.5% increase in Social Security payments in January 2025. This is good news because it means inflation is going down, but the 3.2% increase at the beginning of 2024 makes this year’s increase seem pretty small.
It will also cost an extra $10.30 a month to have Medicare Part B in 2025. When you add in the 2.5% COLA, the average retiree will get an extra $49 a month.
However, most Medicare users will only get an extra $39 a month after the Medicare increase. Still, inflation is not going to rise as much as it did in 2024, so this rise may be enough to weather the storm.
There’s more leeway to earn money from a job while collecting benefits
It is possible to get benefits while working, though most people do not know this. However, if you decide to do that, your Social Security benefit could go down based on your age. The salary test limit is the name for this cut.
There are two limits on how much you can make that change based on your age. The limit has gone up from $22,320 in 2024 to $23,400 for seniors who have not hit their full retirement age yet. For people born in 1960 or later, that age is 67.
For every two dollars you earn above that amount, your benefits will go down by one dollar. The upper limit for people who reach full retirement age will go up from $59,520 in 2024 to $62,160 in 2025. When you earn more than that, the benefits go down by one dollar for every three dollars you make.
Once they reach full retirement age, there are no more limits, and the amounts that were kept will be recalculated to show how much money they will get in benefits.
Higher earners are looking at a larger Social Security tax bill
Paycheck taxes pay for most of Social Security, so it makes sense that the more you earn, the more you pay, up to a point.
Because the program is not scalable, there is a limit on how much people can contribute to taxes. This limit is called the pay cap, and it will go up from $168,600 in 2024 to $176,100 in 2025.
Most workers will not have to worry about this change because their wages do not go over the limit. But people who make a lot of money will have to pay more taxes, which may not be good news.
To be exact, an extra $7,500 in income will be taxed by Social Security. At a tax rate of 12.4%, that is an extra $930 in taxes. But people who get paid a salary will only feel half of that hit because their bosses will pay the other half.
Thankfully, this also means that the highest amount of money retired can get will go up from 2024 to 2025.
The SSA calculates benefits based on people who have worked at least 35 years and waited until they were 70 years old to apply. In 2025, the most they can get is $5,108, up from $4,873 in 2024.