Social Security in 2025: What’s good and what’s not for retirees

As 2025 approaches, it’s time to start planning finances, especially for those who rely on Social Security. A 2024 report by the Transamerica Center for Retirement Studies found that over 40% of baby boomers expect these benefits to be their primary income in retirement. Keeping up with changes is crucial, as they could significantly impact your finances.

Positive changes for retirees

Cost-of-living adjustment (COLA)

Starting in January, Social Security benefits will increase by 2.5% due to COLA, translating to roughly $50 more per month for the average retiree who receives just over $1,900. While this is the smallest increase since 2021, it reflects a slowdown in inflation. The Bureau of Labor Statistics reported a 12-month inflation rate of 2.6% in October 2024, a significant drop from 9.1% in June 2022.

Increased earnings test limits

For retirees under full retirement age (FRA) who are still working, the earnings test limits will rise in 2025. This change allows retirees to earn more before facing benefit reductions. For example, a retiree earning $30,000 annually could see monthly reductions fall from $320 in 2024 to $275 in 2025, keeping an additional $45 each month.

Challenges ahead

Higher Maximum Benefit and Taxable Earnings Cap

While the maximum monthly benefit will rise to $5,108 in 2025, achieving this will be more difficult. The taxable earnings cap will increase from $168,600 to $176,100, meaning higher earners will pay Social Security taxes on a larger portion of their income. This change could make it harder for individuals to qualify for the maximum benefit.

Preparing for the future

With adjustments like COLA, increased earnings limits, and changes to taxable income, retirees must stay informed. Planning now could help mitigate challenges and make the most of opportunities in the year ahead.