Everything Will Change in Social Security – 3 Changes That Will Surprise Millions of Seniors

In April 2024, over 50 million retired workers received Social Security benefits, with many relying on these payments as their primary income source. A Gallup survey revealed that 88% of retirees depend on Social Security, with 60% considering it a “major source” of income.

Given its significance, it’s crucial for beneficiaries and future recipients to stay informed about changes to the program. However, a survey by the Nationwide Retirement Institute indicates a widespread misunderstanding of Social Security fundamentals among Americans.

Here are three upcoming Social Security changes in 2025 that might catch many by surprise:

COLA in 2025

The Nationwide Retirement Institute found that 70% of adults mistakenly believe that “Social Security is not protected against inflation.” This is incorrect; Social Security benefits include an annual COLA to maintain their purchasing power.

The COLA is determined by changes in a specific segment of the Consumer Price Index (CPI) during the third quarter of the previous year, from July to September. The Social Security Administration (SSA) can only confirm the 2025 COLA after the September CPI data is released in mid-October.

The Senior Citizen League, a nonprofit senior advocacy group, predicts a 2.7% increase in benefits for 2025 based on current inflation trends. Given the recent higher-than-expected inflation, the actual 2025 COLA could surpass this estimate. If the 2.7% COLA holds, the average monthly benefit for retired workers would rise by approximately $51, reaching $1,967.

Increased Social Security Taxes

Nationwide’s survey revealed that 74% of adults wrongly believe “workers pay Social Security taxes on all of their income.” In reality, there is a cap on the income subject to Social Security payroll tax, which is $168,600 in 2024. Earnings above this threshold are not taxed by Social Security. This cap is adjusted yearly based on the national average wage index.

Although the official 2025 limit will be announced in mid-October, the Social Security Board of Trustees estimates it will rise to $174,900. This means workers earning above this threshold will pay up to $391 more in Social Security taxes next year. Specifically, the tax rate is 6.2%, so a worker earning more than $174,900 will have $10,844 withheld from their paychecks in 2025, compared to $10,453 in 2024.

Benefit Withholding

Nationwide’s survey highlighted that 46% of adults incorrectly disagree with the statement: “Some of your benefits may be withheld if you’re still working before your full retirement age.” This statement is true. Beneficiaries may have part of their benefits temporarily withheld if they are under full retirement age and their earnings exceed certain thresholds, known as the retirement earnings test exempt amounts.

For 2024, beneficiaries under full retirement age (from age 62 until the year they reach full retirement age) will have $1 withheld for every $2 earned above the lower limit of $22,320. Those reaching full retirement age this year will have $1 withheld for every $3 earned above the upper limit of $59,520.

The official retirement earnings test exempt amounts for 2025 will be published in mid-October, following changes in the national average wage index. The Social Security Board of Trustees projects that the lower limit will be $23,280 and the upper limit will be $61,800. This means beneficiaries under full retirement age can earn more before benefits are withheld next year.

Once a beneficiary reaches full retirement age, these limits no longer apply. Additionally, any benefits that were withheld before reaching full retirement age will be recalculated into the benefits the retirees are entitled to, ensuring they recover most or all withheld amounts over their lifetime.

Wrapping It Up

Staying updated on Social Security changes is crucial for millions of seniors relying on these benefits. The 2025 adjustments, including the COLA increase, higher taxable earnings cap, and changes in benefit withholding thresholds, will impact many retirees. It’s important to know these changes to plan effectively and ensure financial stability in retirement.

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