Social Security is set to undergo some changes next year, and recent surveys suggest that many Americans will be surprised by those changes.
In April 2024, more than 50 million retired workers received Social Security benefits. These monthly payments are often their largest source of income. In fact, a recent Gallup poll found that 88% of retirees rely on Social Security in some way, and 60% said the benefit is their “primary” source of income.
The Social Security program undergoes certain changes each year to keep benefits in line with inflation and prevailing wage levels. Given the important role benefits play in retirement, it’s essential that recipients (and soon-to-be recipients) stay informed. But a recent survey by the National Association of Retired Persons found that many Americans misunderstand basic aspects of the program.
Three changes coming to Social Security in 2025 may surprise many Americans.
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1. Social Security benefits will be subject to a cost-of-living adjustment (COLA) in 2025
The Nationwide Retirement Institute recently reported that 70% of adults surveyed incorrectly agreed with the statement that “Social Security is not protected against inflation.” This statement is false: Social Security benefits are subject to annual cost-of-living adjustments (COLAs) to protect the purchasing power of your benefits.
The COLA that applies to benefits for a particular year is based on the change in a subset of the Consumer Price Index (CPI) during the third quarter of the previous year, i.e., the three months from July to September, so the Social Security Administration cannot determine the official COLA for 2025 until September CPI data is released in mid-October.
Based on current consumer price trends, the Senior Citizens League projects benefits will increase by 2.7% in 2025. But the nonprofit seniors advocacy group has already revised its projections upward several times due to higher-than-expected inflation in recent months, meaning the official COLA for 2025 could be higher.
But assuming Social Security benefits actually receive a 2.7% COLA next year, retired workers’ average monthly benefits would increase by about $51, for a total of $1,967.
2. In 2025, some workers will have more Social Security taxes withheld from their paychecks.
According to Nationwide, 74% of adults surveyed incorrectly agreed with the statement: “Workers pay Social Security tax on all their income.” This statement is false. Current law caps the income that is subject to Social Security payroll tax. Taxable income is capped at $168,600 in 2024, and any income above this amount is not subject to taxation by the Social Security program.
The taxable income limit is adjusted annually based on changes in the National Average Wage Index. The official limit for 2025 will be released in mid-October, but the Social Security Board projects that next year’s tax limit will be $174,900. If that happens, workers will pay up to $391 more in Social Security taxes in 2025.
Specifically, because the tax rate is normally 6.2%, a worker making more than $174,900 would have $10,844 deducted from their pay next year. But that same worker would have $10,453 deducted from their pay this year — a difference of $391.
3. Some Social Security recipients will have their benefits garnished in 2025
According to Nationwide, 46% of people surveyed incorrectly disagreed with the following statement: “If I’m still working before I retire, some of my benefits could be garnished.” Full retirement age“That statement is true.”
Workers receiving Social Security may have a portion of their benefits temporarily withheld if (1) they have not reached full retirement age and (2) their income exceeds a threshold known as the retirement income test exemption. A minimum limit applies throughout the year to recipients who have not reached full retirement age, and a maximum limit applies throughout the year to recipients who have reached full retirement age.
Currently, the floor is $22,320 and the ceiling is $59,520. This means that for beneficiaries who have not yet reached full retirement age in 2024, $1 in benefits will be deducted for every $2 in earnings above the floor. Similarly, for beneficiaries who reach full retirement age in 2024, $1 in benefits will be deducted for every $3 in earnings above the ceiling.
The official retirement income test exemption amount for 2025 will be calculated based on the change in the national average wage index and will be released in mid-October. However, the Social Security Board estimates that the lower limit will be $23,280 and the upper limit will be $61,800. In other words, beneficiaries who have not yet reached full retirement age will be able to earn more before their benefits are stopped next year.
Importantly, once a Social Security recipient reaches full retirement age, the Retirement Income Test amount is no longer significant. Moreover, because benefits withheld before full retirement age are gradually repaid, retired workers can get most or all of that money back over their normal lifespan.
