All Retirees Know Social Security Is Changing in 2025 – Here Are the 3 Biggest Changes

The Social Security Administration (SSA) is rolling out several updates for 2025 to improve benefits and adapt to changes in the economy. While most adjustments are positive, some unresolved issues remain a concern for beneficiaries. Let’s look into the most important changes to Social Security for the new year and how they may affect you.

COLA

Every year, Social Security benefits receive a cost-of-living adjustment (COLA) to help recipients keep pace with inflation. In 2025, benefits will increase by 2.5%, marking a smaller adjustment than in previous years.

For the average retiree, who receives $1,907 per month, this translates to a raise of about $49 per month. However, with the recently announced $10 increase in Medicare Part B premiums, the net benefit increase is closer to $39—a modest amount given the rising cost of essentials.

While the lower COLA reflects cooling inflation, many seniors worry it won’t adequately cover their expenses. In 2024, inflation outpaced the COLA, leaving retirees struggling, and there’s concern that 2025 may repeat this pattern.

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Earnings-Test Limits

Good news for those working while collecting Social Security: the earnings-test limits will increase in 2025. These limits determine how much you can earn before your Social Security benefits are reduced.

• For those under full retirement age (FRA): The limit will rise to $23,400 (from $22,320). Any earnings above this amount will reduce your benefits by $1 for every $2 earned.
• For those reaching FRA in 2025: The limit will increase to $62,160 (from $59,520). Earnings beyond this amount will reduce benefits by $1 for every $3 earned.

Importantly, these reductions are not permanent. Once you reach FRA, your benefits will be recalculated to account for any amounts withheld due to the earnings test.

Wage Cap

To fund Social Security, payroll taxes are applied up to a wage cap, which rises each year to account for increasing wages. In 2025, this wage cap will increase from $168,600 to $176,100.

For high earners, this means that an additional $7,500 of income will now be subject to the 12.4% Social Security payroll tax, resulting in an extra $930 in taxes. Employers and employees split this amount evenly, but self-employed individuals will pay the full amount themselves.

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This increase ensures the system remains funded as wages rise but may result in a higher tax burden for some workers.

Benefits

One aspect of Social Security that remains unchanged is the threshold for taxes on benefits. Beneficiaries do not pay taxes on their benefits alone; instead, taxes are based on combined income, which includes:

• 50% of Social Security benefits
• Taxable income (e.g., wages, investments)
• Non-taxable interest (e.g., municipal bond income)

The thresholds for combined income taxation, however, have not been adjusted since they were introduced decades ago. These limits remain at:

• $25,000 for individual filers
• $32,000 for married couples filing jointly

Because these thresholds are not indexed to inflation, more beneficiaries are subject to taxes every year. Currently, about 40% of Social Security recipients pay taxes on their benefits, and that percentage is expected to rise unless the thresholds are updated. Advocates argue that revising these limits would provide much-needed relief to retirees struggling with rising living costs.

Impacts

The changes to Social Security in 2025 offer a mix of benefits and challenges:

Change	Impact
2.5% COLA	Modest increase in benefits, but likely inadequate to cover rising costs.
Higher earnings-test limits	Allows workers to earn more without reducing benefits.
Wage cap increase	More income subject to payroll taxes for high earners.
No change to benefit tax thresholds	Continues to subject more beneficiaries to taxation.

While the SSA’s updates address some areas, others, like outdated taxation thresholds, remain unaddressed. Beneficiaries should plan carefully and stay informed about how these changes might impact their finances.

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