The year 2024 is quickly approaching, and various changes and updates will be introduced in the field of Social Security in the coming year. Some apply to retirees who already receive Social Security, while others apply to people who are still working or will shortly start collecting benefits.The majority of them are based on inflation. Here are five Social Security reforms to be aware of in 2025 so you don’t miss out.
Social Security changes beneficiaries should be aware of in 2025
A new cost of living adjustment (COLA) increase will impact monthly checks
The cost-of-living adjustment, or COLA, for Social Security claimants was set at 2.5%, and it will take effect with the January 2025 payments.
According to the most recent data from October, the average monthly Social Security income for a retired worker was $1,925.46, implying that the average will be around $1,974 once the COLA takes effect. It is crucial to note that the COLA increase is given annually so that beneficiaries can keep up with inflation and have enough money to support their living expenditures.
The Social Security benefit formula will change in less than 2 weeks
The government agency’s bend points will vary, but the Social Security benefit formula will remain same. In essence, the Social Security computation uses three multipliers: 90%, 32%, and 15%. Your monthly average salaries are then calculated using a formula that averages your 35 highest-earning years, which has been adjusted for inflation.
The amount of money to which these percentages apply, known as bend points, varies annually but remains fixed. The formula for calculating average indexed monthly earnings (AIME) for people who first qualify in 2025 is:
- 90 percent of the first $1,226.
- 32% of the total between $1,226 and $7,391.
- 15% of any AIME over $7,391.
Maximum monthly checks could reach up to $4,995
As a result of inflationary adjustments, the maximum allowable Social Security payout is rising. In 2025, someone retiring at their full Social Security retirement age will get the maximum monthly benefit of $3,918, and if they decide to delay benefits until 70, they could receive up to $4,995. However, because most persons do not begin collecting Social Security at their precise full retirement age, consider the following:
- The maximum monthly compensation for someone retiring at 62 in 2025 will be $2,778.
- The maximum monthly benefit at age 70 will be $4,995.
Social Security contribution and benefit base will also change
This change affects both present employees and those who will shortly begin receiving monthly benefits, as the contribution and benefit base will rise from $168,600 to $176,100 by 2025.
This sum is commonly referred to as the “taxable maximum earnings,” because it is the sole amount subject to the 6.2% Social Security tax that employers and employees are required to pay. It is the maximum amount of money that can be used to calculate AIME, as discussed in the formula section above, but it also has to do with benefit computation.
The maximum amount you can make while receiving Social Security benefits
Finally, the existing earnings test limits will alter in less than two weeks. For those who are unfamiliar, there is a limit to how much earned income you can have while collecting Social Security benefits if you have not yet reached full retirement age. Additionally, the earnings test is divided into two parts:
If you reach full retirement age after 2025, you may be eligible for a monthly earnings exemption of up to $1,950. Above that level, $1 in benefits is deducted for every $2 in excess earned income.
If you reach full retirement age in 2025, you will be eligible for a $1 withholding for every $3 earned over $5,180 per month.
It’s crucial to remember that any money withheld under the earnings test will be added to your benefit after you reach full retirement age, so it’s not completely lost.