What All Retirees Need to Know About Social Security in 2025
There is no shortage of changes in Social Security each year. It has been that way since the program was started decades ago, and no signs are pointing to it stopping anytime soon (if ever).
While some benefits are specific to particular groups, other changes are more universal and apply across the board to all current or incoming recipients.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
As we hit the ground running in the early parts of 2025, here are three key changes retirees and soon-to-be retirees should know about Social Security.
Image source: Getty Images.
1. Monthly benefits got a raise
Inflation has made its mark on many of our products and services, from groceries to housing to healthcare to seemingly everything in between. To (somewhat) offset the effects of inflation, Social Security has an annual cost-of-living adjustment (COLA).
Changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) -- which measures inflation on certain products and services -- decide the annual COLA. Social Security compares the inflation numbers from July, August, and September (Q3) of one year to the previous year's numbers and adjusts benefits accordingly.
The 2024 inflation numbers were 2.5% higher than the 2023 numbers, so the annual COLA heading into 2025 was set at 2.5%.
If the 2024 numbers had been the same as or less than the 2023 numbers, there wouldn't have been any COLA (Social Security never reduces benefits because of CPI-W drops). So, although 2.5% may seem like a minimal boost, remember: It could be -- and has been -- worse.
For perspective, here are the previous 10 COLAs:
| Year | COLA |
|---|---|
| 2024 | 3.2% |
| 2023 | 8.7% |
| 2022 | 5.9% |
| 2021 | 1.3% |
| 2020 | 1.6% |
| 2019 | 2.8% |
| 2018 | 2% |
| 2017 | 0.3% |
| 2016 | 0% |
| 2015 | 1.7% |
Data source: Social Security Administration.
2. More of your paycheck could be subjected to Social Security payroll taxes
Most American workers must pay Social Security payroll taxes (I say "most" because there are exceptions for certain religious organizations or those working in certain government fields).
If you have an employer, you split the 12.4% Social Security tax, paying 6.2% each. If you're self-employed, you're responsible for paying the full 12.4%. Thankfully for higher earners, not all income is subject to Social Security payroll taxes; only income up to a certain amount, called the wage base limit.
Beginning this year, the wage base limit was increased to $176,100, up from the $168,600 limit in 2024. Unfortunately, this means that more of some workers' income will be subject to Social Security payroll taxes.
For instance, if you earned $170,000 in 2024, $1,400 would be exempt from Social Security payroll taxes. However, if you earn $170,000 in 2025, all of it will be subject to taxes because it's below the new wage base limit.
Changes in the wage base limit are based on changes in the national average wage index (NAWI). If the NAWI increases, the wage base limit will increase accordingly. If the NAWI drops or remains the same, the wage base limit will remain the same.
Here are the wage base limits from the previous 10 years:
| Year | Wage Base Limit |
|---|---|
| 2024 | $168,600 |
| 2023 | $160,200 |
| 2022 | $147,000 |
| 2021 | $142,800 |
| 2020 | $137,700 |
| 2019 | $132,900 |
| 2018 | $128,400 |
| 2017 | $127,200 |
| 2016 | $118,500 |
| 2015 | $118,500 |
Data source: Social Security Administration.
3. You can earn more while claiming benefits early without getting penalized
Many people continue to work or earn money even after claiming Social Security. The problem, however, is when you claim benefits before your full retirement age (FRA) and earn over a certain amount.
When this happens, you'll face the Social Security retirement earnings test (RET), which temporarily lowers your monthly benefit amount. Luckily, beginning this year, the earnings limit has increased.
For those who won't reach their FRA in 2025, the earnings limit is $23,400, up from $22,320 in 2024. Earning more than that will reduce your annual benefits by $1 for every $2 over.
For those who will reach FRA this year, the limit is $62,160, up from $59,520 in 2024. Earning above that before reaching FRA will reduce benefits by $1 for every $3 over.
Although your monthly benefit will be reduced by earning over the limit, it's not permanently lost. Once you reach your FRA, Social Security recalculates your benefits in a way that gradually adds back the withheld amount over your lifetime.
The $22,924 Social Security bonus most retirees completely overlook
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 ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
View the "Social Security secrets" »
The Motley Fool has a disclosure policy.
Recommended Articles
