Ch-ch-ch-ch-changes
Turn and face the strange
Ch-ch-changes
I don’t want to be a richer man
-David Bowie

David Bowie may not want to become a richer man, but most of us would like to be richer, and the annual changes to Social Security can help, in a modest way. Here are some important things to know about Social Security changes for 2025.

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1. Social Security benefits increase – via a COLA

What’s especially wonderful about Social Security is that your benefits tend to increase each year thanks to Cost of Living Adjustments (COLA). Without this feature, it would be impossible to follow inflation, and benefits would lose a lot of purchasing power over time. The latest COLA, which will take effect in 2025, is 2.5%, just a bit below the average annual increase of 2.6% over the past two decades.

2. The maximum monthly benefit also increases

The average monthly Social Security retirement benefit was $1,922 in September, or about $23,000 a year. It’s not that much, right? Fortunately, if you have earned more than average over your working life, you will receive an above-average benefit.

The new maximum monthly benefit for 2025 is $5,108 (about $61,300 for the year), up from $4,873 in 2024. It should look more like this, but wait. Unfortunately, almost no one will be entitled to it. In fact, to be eligible, you will have to:

• Earn at least the maximum income counted in Social Security calculations – which will be $176,100 for 2025 and has been similarly high in recent years.

• Earn at least this maximum for at least 35 years.

• Delay paying your benefits until age 70.

However, even if you don’t get the maximum benefit, know that there are things you can do to increase your future benefits. Choosing the best age to apply for your benefits is part of it, and for most people, the best age to apply for benefits is 70.

3. More income will be subject to Social Security tax

You may not realize it, but when 6.2% of your salary is deducted for Social Security (plus 1.45% for Medicare), your employer contributes the same amount. These tax rates don’t change for 2025, but the amount of your income taxed into Social Security will change. It goes from $168,600 to $176,100.

So, if you earn $75,000 or $176,100, your entire income is taxable. But if you earn $1,176,100, only $176,100 is taxed into Social Security and $1 million is not.

4. Winning limits increase

Another number that is increasing is the earnings cap. If you haven’t yet reached Full Retirement Age (FRA) and are working while receiving Social Security, you can only earn a certain amount before Uncle Sam starts to withhold some of your Social Security benefits. (The full retirement age is 66 or 67 for most people and 67 for those born in 1960 or later.)

This limit was $22,500 for the year in 2024, and it increases to $23,400 for 2025. This is for those who will not reach their FRA in 2025, and they will lose $1 in benefits for every $2 earned above the limit. For those who reach this ceiling, the income limit is higher: $62,160, compared to $59,520 in 2024. And the withholding is $1 for every $3 of excess earnings.

This may sound terrible, but know that these amounts withheld will eventually come back to you in the form of increased future benefits.

5. Disability benefits increase

The Social Security Administration (SSA) estimates that the average monthly benefit for workers with disabilities, their spouses and children will be $2,826 in 2025, up from $2,757. For all disabled workers, it goes from $1,542 to $1,580.

6. Benefits paid to widows, widowers and surviving children increase

Widows, widowers, and surviving minors can also receive Social Security benefits, and the SSA estimates that benefits will amount to $1,832 for an elderly widow or widower, compared to $1,788. A widowed mother and two children will receive an average of $3,761 per month, compared to $3,669.

7. Medicare Part B premiums will likely increase too

Now back to Medicare. Retirees generally have their Medicare Part B premiums automatically deducted from their Social Security benefits. For 2024, this monthly amount is $174.70. The amount for 2025 is not known at the time of writing, but some predict it will be $185 for 2025.

Social Security benefits are a lifeline for most retirees and keep many millions above the poverty line. It may therefore be wise to follow developments in Social Security in order to optimize your retirement planning.

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7 Social Security Changes Retirees Need to Know About in 2025 was originally published by The Motley Fool