If you’re one of the roughly 80 million Americans currently receiving Social Security benefits, there are a few changes you should be aware of starting January 1 of the New Year.
Good news for retirees: Yes, payments are increasing
This is the best news, considering the Biden economy and rampant inflation eating up about 20% of our income.
The cost of living adjustment (COLA) for 2025 is a meager 2.5%. But as retirees know, every little bit helps. Depending on your current payment, this could go from $50 to $1,975 per month.
Bad news for workers: Yes, it’s your paycheck. could do it go up
Folks, the money for Social Security has to come from somewhere. And somewhere in there is the employee payroll tax. It is currently 12.4%.
The good news is that this tax has an income cap. The bad news is that the limit is increasing. Previously, workers paid a 12.4% tax on earnings up to $168,000, but now they will pay taxes on earnings up to $176,000.
Although this only affects roughly the top 6% of payroll tax payers, it is very important for the self-employed.
More good news: Maximum monthly benefit increases
As most people know, you can retire at age 62. But if you wait until age 70, your monthly checks will be larger.
The new maximum payment is $4,018.
Raising early filer benefit withholding standards and income standards for disability.
This can get a little complicated, so let me bring in The Motley Fool to explain.
For early filers: “Early filers who have not reached full retirement age in 2024 will have $1 withheld for every $2 in earned income over $22,320, or $1,860 per month. Early filers who don’t reach full retirement age this year can earn up to $23,400 ($1,950 per month) without withholding.
“Withholding standards vary significantly for workers who: will do You will reach full retirement age sometime in 2025. For early filers in this category, $1 in benefits may be withheld for every $3 of earned income over $62,160 ($5,180 per month) in the year. This is an increase from $59,520 ($4,960 per month) in 2024.”
Simply put, you can earn more outside income this year without penalty.
On the disability side, workers can now earn $1,620 in outside income without penalty.
These two increases are fairly modest, but as any fixed income recipient knows, every dollar helps.
Unfortunately, benefit work credits are on the rise.
To oversimplify a complex system, Social Security basically works by granting credits to workers based on their earnings. Once you earn a certain amount, these are considered “credits,” of which you can only earn 4 credits per year, and you need 40 credits to receive Social Security benefits in retirement.
In the future, the “cost” of those credits will go up. Previously, you earned a credit of $1,730 in income. This year, that amount increased slightly to $1,810.
So, to get the maximum credit (sorry), you’ll need to earn at least $7,240 in 2025.
Social Security Summary Information
- Most Social Security beneficiaries are not actually retirees. More than 53% of beneficiaries were between the ages of 18 and 64.
- 55% of Social Security beneficiaries are women.
- In 1970, approximately 25 million Americans received Social Security benefits. Today, that number is well over 70 million.
- In 2023, Social Security will pay out $1.35 trillion.
- Social Security spending accounts for about 22% of the total federal budget.
