According to Lagradaonline, If you’re planning to retire soon, having a clear plan for your retirement income is crucial. Social Security will play a significant role in this strategy for many individuals, making it essential to stay updated on the latest benefits information. The Social Security Administration (SSA) has recently announced several important changes for the 2025 program, including its annual Cost of Living Adjustment (COLA). Here’s what you need to know about the upcoming changes to Social Security.
Key Changes to Social Security for 2025
With more than 72.5 million people relying on Social Security benefits, annual adjustments to the program and its payouts are highly anticipated. This year, the COLA adjustment is set at 2.5%, a decrease from last year’s increase of 3.2%. While any additional income is beneficial for those living on fixed incomes, individuals may also want to consult a financial advisor to develop a comprehensive retirement income plan.
1. COLA Increase
The SSA has announced that benefit checks will rise by 2.5% in 2025. This means an increase of approximately $50 in monthly benefits for retirees beginning in January. Specifically, the average check for retired workers will increase from $1,927 to $1,976. For couples both receiving benefits, the estimated payment will rise from $3,014 to $3,089.
The COLA is determined based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks inflation. The SSA compares the CPI-W from the third quarter of the previous year to that of the current year to calculate this adjustment.
2. Increase in Maximum Taxable Earnings
In 2024, the maximum earnings subject to Social Security taxes was $168,600. This amount reflects the wages on which workers are taxed at a rate of 6.2%. For 2025, this maximum will increase to $176,100, which corresponds to the rise in average wages across the United States.
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3. Maximum Social Security Benefits Increase
For workers retiring at their full retirement age, the maximum Social Security benefit will rise from $3,822 in 2024 to $4,018 in 2025. This maximum applies to individuals born after 1960, who will reach full retirement age at 67. Those who retire before reaching full retirement age will see a lower maximum benefit due to reductions in their payments.
4. Average Benefits for Spouses and Disabled Workers
The average benefits for spouses and disabled workers are also set to increase in 2025. This adjustment is particularly important for those facing more challenging circumstances, such as widows, widowers, and individuals with disabilities. Specific average amounts may vary based on individual situations.
5. Adjustments to Income Test Exemptions
For those collecting Social Security retirement benefits before reaching full retirement age, their benefits may be withheld if their income exceeds certain limits. This situation is known as the retirement earnings test. In 2025, the monthly earnings limit will be $1,950 before benefits are withheld.
Once beneficiaries reach full retirement age, this limit still applies until the month they attain it. For 2025, individuals can earn up to $5,180 per month without having benefits withheld, with the SSA deducting $1 in benefits for every $3 earned above this limit (instead of the previous threshold of $2).
Conclusion
In summary, the COLA for 2025 will provide retirees and other beneficiaries with an increase in their Social Security benefits. However, this is just one of several modifications being made to the program to accommodate ongoing cost increases. Staying informed about these changes can help you better plan your retirement and ensure financial stability in your later years.