As we approach the end of 2024, experts are beginning to take a closer look at the possible financial adjustments that will come in 2025, in relation to the Social Security program.
Every year, this system undergoes modifications that can affect both retirees and workers, ranging from new eligibility requirements to smaller-than-expected increases in benefits, in the face of faltering inflation.
1. It Will Soon Be Harder to Qualify for Social Security
Seniors do not automatically get Social Security benefits just because they have reached a certain age. To receive benefits, it is necessary to accumulate 40 work credits over a lifetime, with a maximum of four credits per year. In 2024, a single credit is equivalent to $1,730 of income, but this threshold is likely to increase in 2025.
For those Americans and legal resident aliens who work part-time and want to qualify for Social Security, this could mean the need to increase their working hours. The good news is that full-time workers will generally not be affected by this increase. A full-time minimum wage should be enough to secure the four annual credits.
“These are just some of the changes to Social Security that are likely to occur in 2025. Regardless of whether you are retired or not, it is worth keeping an eye on the program and seeing what will happen,” said a retirement policy expert, who stressed the importance of retirees and other SSA beneficiaries always being attentive to changes and how they affect them.
2. More Taxes for High-Income Earners
I don’t know if you knew, but the main source of funding for Social Security is payroll taxes. However, those who earn more do not pay taxes on all their income due to a salary cap that is adjusted every year.
In 2024, the salary cap is $168,600. This means that someone earning $200,000 will not pay Social Security taxes on the last $31,400 of their income. That’s about to change very soon.
The salary cap usually increases annually due to inflation and wage growth. In 2025, high-income earners should prepare to pay more Social Security taxes. “In 2025, the top earners should expect to pay even more Social Security taxes – it’s just a question of how much,” one financial analyst explained.
For those who could be affected by this increase, it is recommended to consult with an accountant to develop tax strategies, such as maximizing contributions to retirement plans or assuming investment losses to offset income.
3. Increase in Payments, but with a COLA Adjustment Less than Desired
Social Security benefits are subject to an annual cost of living adjustment (COLA) to help retirees maintain their purchasing power in the face of inflation. In 2024, the COLA was 3.2%, and in 2023 it was 8.7% due to significant inflation.
By 2025, the COLA is expected to be lower, with an estimate of 2.63%. Although this figure is not definitive, since it is calculated based on the inflation data of the third quarter, it provides an idea of what beneficiaries can expect. “It’s certainly not the lowest Social Security increase on record, but it’s a smaller increase than recent ones,” one economist noted.
For those who are dependent on Social Security benefits, it is advisable to prepare for this minor adjustment. Cutting expenses or looking for additional sources of income might be necessary to compensate for the smaller increase in benefits in the midst of an insecure economy, and right in the middle of an election year without us knowing who the next President of the United States of America will be.
