As 2024 draws to a close, the new year will see numerous changes and adjustments take effect in the world of social security. Most of these are inflation-related, and while some apply to retirees who are already collecting Social Security, others apply to those who are close to receiving their benefits or are still working.

Without further delay, here are five Social Security changes in 2025 you need to know about.

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1. The 2025 Social Security COLA

Social Security beneficiaries will receive a 2.5% cost of living adjustment (COLA) beginning with the payment they receive in January 2025. According to the most recent data from October, the average retired worker received $1,925.46 per month from Social Security, meaning the average will be about $1,974 once the COLA goes into effect.

2. The Social Security Benefits Formula

The formula for social security benefits itself does not change, but the so-called “breaking points” do.

The basic idea behind the Social Security formula is that your 35 years of highest earnings are indexed for inflation and averaged, and your average monthly earnings are applied to a formula with three multipliers – 90%, 32% and 15%. These percentages stay the same every year, but the amount of money to which they are applied, called bend points, changes. For those first eligible in 2025, the following formula applies to average indexed monthly earnings (AIME):

• 90% of the first $1,226.

• 32% of the amount between $1,226 and $7,391.

• 15% of all AIME over $7,391.

3. Maximum possible social security benefit

Inflation-related adjustments increase the maximum possible social security benefit. Those who retire at their full Social Security retirement age in 2025 will earn a maximum of $4,018 per month. However, because most people do not yet start receiving social security contributions Exactly If you want to reach full retirement age, consider the following:

• The maximum possible benefit for someone retiring at age 62 in 2025 is $2,831 per month.

• The maximum possible benefit at age 70 is $5,108 per month.

4. Contribution and benefit basis

Here’s a change that applies to both people still working and those just starting to collect Social Security. In 2025, the contribution and benefit base increases to $176,100 from $168,600 in 2024.

This number is often referred to as the “maximum social security earning” because the 6.2% Social Security tax for employers and employees only applies to this level of income. However, it is also related to the benefit calculation as it is the maximum amount of money that can be used to determine AIME, which I already discussed in the formula section.

5. How much can you earn if you collect Social Security?

Last but not least, the Social Security income test limits are changing for 2025. In case you don’t already know, if you’re not yet of full retirement age and collecting Social Security, there is a cap on the amount of earned income you can have during that time can still receive benefits. The merit test consists of two components:

• When you reach full retirement age after Starting in 2025, monthly income of up to $1,950 can be tax-free. Above this threshold, $1 in benefits is withheld for every $2 in excess of earned income.

• When you reach full retirement age while Starting in 2025, up to $5,180 per month is tax-free, and for every $3 earned above that, $1 can be withheld.

Note that money withheld doesn’t just go away – once you reach full retirement age, anything withheld as part of the earnings test will be used to increase your benefit.

The biggest changes could be yet to come

As you can see, these are not “changes” in the sense that Social Security laws will remain the same from 2024 to 2025. However, Social Security is expected to run deficits for the foreseeable future and run out of money in a decade. Major changes will need to be made. If you are at or near Social Security age, you should stay up to date on the latest developments.

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