Social Security has been a cornerstone of American retirement for nearly 90 years, but the program is evolving. With several significant changes slated for 2025, it’s crucial to stay informed to make the most of your benefits. Whether you’re already receiving Social Security or planning for the future, here are two major updates that could affect you.
1. Modest Increase in Social Security Benefits
Good news for Social Security recipients: there will be a 2.5% increase in benefits for 2025, thanks to the annual cost-of-living adjustment (COLA). This means the average monthly benefit will rise from $1,927 to $1,976, providing an extra $50 per month for most recipients.
However, the bump may not feel as substantial as those from previous years. In 2023, for instance, the increase was 8.7%, and in 2024, it was 3.2%. Compared to these larger raises, the 2.5% hike in 2025 might seem underwhelming. Still, it’s important to keep in mind that COLA is tied to inflation, and the relatively modest adjustment suggests that inflation is cooling.
For perspective, there have been years without any COLA at all, such as 2010, 2011, and 2016. Even more recent years, like 2020 and 2021, only saw increases of 1.6% and 1.3%, respectively. While the 2025 increase may not be a windfall, it’s certainly better than no raise, and it reflects the current economic climate.
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2. More Earning Potential While Collecting Social Security
Many retirees find themselves in a situation where their Social Security benefits don’t fully cover their expenses, prompting them to return to work. If you’re considering working while receiving Social Security benefits, here’s some good news: the earnings limits for 2025 are rising.
- For Early Filers: If you start collecting Social Security benefits before reaching full retirement age (FRA)—67 for those born in 1960 or later—the earnings limit will increase to $23,400 in 2025. This is up from $22,320 in 2024, meaning you can earn an extra $1,080 before your benefits are reduced. For every $2 you earn over this limit, $1 is withheld from your benefits.
- For Those Reaching FRA in 2025: If you’ll reach FRA in 2025, the earnings limit jumps significantly to $62,160, up from $59,520 in 2024. In this case, the Social Security Administration will withhold $1 for every $3 you earn above the limit. However, once you reach FRA, the earnings test no longer applies, and any withheld benefits are returned to you in the form of higher monthly payments in the future.
What’s Next?
As you plan for 2025, be sure to keep these changes in mind. While the COLA may not be as large as in recent years, the increase still provides extra money for retirees. And for those considering working while collecting Social Security, the increased earnings limits offer more room to earn without penalty.
For many, understanding how to maximize Social Security benefits can make a significant difference in their financial future. If you haven’t explored the full potential of your Social Security benefits, consider learning about strategies that could help you boost your retirement income by thousands of dollars a year.
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