Social Security has been around for nearly nine decades, but the program has undergone a major overhaul since then. And now we are preparing for big changes in 2025 that could affect millions of people.

Whether you’re already collecting benefits or planning for retirement, it’s important to keep an eye on these changes so you’re not caught off guard. We’ve unearthed two key updates coming to Social Security next year and what they mean for you.

Image source: Getty Images.

1. Social Security benefits see a slight increase

Let’s start with a little good news: Social security benefits will increase by 2.5% in 2025, thanks to the annual cost of living adjustment (COLA). The average monthly Social Security benefit is expected to increase from $1,927 to $1,976 once the 2025 COLA takes effect. For the average retiree, that means about $50 more per month in benefits starting in January. But if you’re enrolled in Medicare Part B, these premiums could reduce your increase.

All things considered, you’re probably not jumping for joy at this news. In fact, a recent Motley Fool survey of 2,000 retirees found that 54% of respondents think next year’s COLA is insufficient. And that’s not surprising. The same survey also reveals that 62% of retirees have cut back on non-essential spending due to inflation.

So, is COLA 2025 good or bad? Let’s return to past COLAs for some context. Recent years have seen some truly sizable adjustments: 3.2% in 2024, 8.7% in 2023, and 5.9% in 2022. Compared to these large increases, the 2.5% COLA for 2025 might seem a disappointment.

But here’s the deal: The 2025 COLA is directly tied to inflation, and a 2.5% increase in Social Security signals that inflation is slowing. Additionally, this adjustment is far from the worst case scenario. Remember, there have been years where Social Security recipients received no raises, such as in 2010, 2011, and 2016. And in 2020 and 2021, the COLAs were only 1.6 % and 1.3%, respectively.

2. There is more room to earn while collecting Social Security

Working while receiving Social Security benefits is more common than you might think. With the average Social Security check coming in at $1,920.48, that’s often not enough to cover the bills for many retirees. So it’s no surprise that the same Motley Fool survey mentioned above found that 50% of retirees plan to return to work.

If you plan to stay or re-enter the workforce while receiving Social Security benefits, here’s some good news: Social Security income limits will increase in 2025. Here’s what you need to know about the income limit and its impact on your income. benefits.

• Income test limit for first-time filers: If you apply for Social Security benefits before reaching full retirement age (FRA) — Age 67 for people born in 1960 or later — you’ll see the earnings limit increase to $23,400 in 2025. That’s an increase from $22,320 in 2024. That means you can earn $1,080 more before Social Security. The administration begins withholding $1 from your benefits for every $2 you earn above the limit.

• Income test limit for those reaching FRA in 2025: If you reach FRA in 2025, the income test limit is much higher. It goes to $62,160. That’s an increase from $59,520 in 2024. Beyond that point, $1 is withheld for every $3 you earn over the limit.

The positive side? Once you reach FRA, the Social Security earnings test no longer applies. Better yet, benefits withheld due to the income test are not lost. You will end up receiving higher monthly payments in the future because these benefits are returned to you.

If you plan to collect Social Security checks next year, keep an eye out for changes that are expected to take place. A little planning today can go a long way toward making the most of your benefits and keeping more money in your pocket.

The $22,924 Social Security Bonuses Most Retirees Completely Ignore

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help you boost your retirement income. For example: a simple trick could earn you up to $22,924 more… every year! Once you learn how to maximize your Social Security benefits, we believe you can retire confidently with the peace of mind we all seek. Just click here to find out how to learn more about these strategies.

See “Social Security Secrets” »

The Motley Fool has a disclosure policy.