The program is rolling out some important changes that you'll want to keep an eye on.
Social Security has existed for nearly 90 years, but the program has undergone a major overhaul since then. And now we are preparing for major changes in 2025 that could affect millions of people.
Whether you're already receiving benefits or planning for retirement, it's important to stay on top of these changes to avoid being caught by surprise. We dug into two important updates to Social Security next year and what they mean for you.
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1. Social Security benefits are increasing slightly
Let's start with some good news. Thanks to the annual cost of living adjustment (COLA), Social Security benefits will increase by 2.5% in 2025. When the 2025 COLA begins, average monthly Social Security benefits will increase from $1,927 to $1,976. For the average retiree, this means benefits will increase by about $50 per month starting in January. However, if you are enrolled in Medicare Part B, these premiums may account for a portion of your increase.
After all, you probably won't be jumping up and down with 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 won't be enough. That's not surprising. The survey also found that 62% of retirees are cutting back on non-essential items due to inflation.
So, is COLA in 2025 good or bad? Let's rewind to past COLAs for a little context. In recent years, there have been very large adjustments: 3.2% in 2024, 8.7% in 2023, and 5.9% in 2022. Compared to these large increases, a 2.5% COLA in 2025 may seem like a disappointment.
But here's the deal. The 2025 COLA is directly tied to inflation, and a 2.5% Social Security increase indicates that inflation is cooling. Moreover, this adjustment is far from the worst-case scenario. Recall that there were years, such as 2010, 2011, and 2016, in which Social Security recipients received no raises at all. And the COLA for 2020 and 2021 was just 1.6% and 1.3%, respectively.
2. You have more room to earn while collecting Social Security.
Working while receiving Social Security benefits is more common than you might think. The average Social Security check is $1,920.48, so it's often not enough to cover many retirees' bills. So it's no wonder that the aforementioned Motley Fool survey found that 50% of retirees are considering returning to work.
If you're planning on staying in or returning to work while receiving Social Security benefits, we have good news for you. In 2025, Social Security income limits will increase. Here's what you need to know about means-tested limits and how they can affect your life. advantage.
- Earnings testing limitations for early filers: If you apply for Social Security benefits before you reach Full Retirement Age (FRA) (age 67 if born after 1960), the income-tested limit will increase to $23,400 in 2025. This will increase from $22,320 in 2024. This means you can earn an additional $1,080 before the Social Security Administration begins to garnish $1 from your benefits for every $2 you earn over the limit.
- Earnings test limitations for those reaching FRA in 2025: If you reach your FRA in 2025, the earnings test limit is even higher. That jumps to $62,160. This is up from $59,520 in 2024. Beyond this point, $1 will be deducted for every $3 earned over the limit.
A silver lining? Once you reach FRA, the Social Security income test no longer applies. Even better, you won't lose any benefits deducted through the earnings test. These benefits are redeemed so you will receive higher monthly payments in the future.
If you plan on collecting a Social Security check next year, keep an eye on upcoming changes. With a little planning today, you can make the most of your benefits and keep more money in your pocket.
