The Social Security Administration (SSA) was founded in August 1935, and since then it has helped hundreds of millions of people stay out of poverty during their retirement years, or when they have suffered a disability during their working years.
Since its founding, it has undergone significant changes over the years to adapt to the social and economic changes that have hit the United States over the decades. Although this is the norm, the year 2025 will be a paradigm shift for the Social Security program, with changes that are of a significance rarely seen before.
A COLA increase lower than what beneficiaries want
Social Security needs to adapt to inflation in several aspects, and significant changes are expected to occur in 2025 that could impact both retirees and workers. Below are some of the most relevant settings that are important to take into account from now on.
One of the key elements of Social Security benefits is your eligibility for automatic cost-of-living adjustments, known as COLAs. The goal of these adjustments is to allow beneficiaries to maintain their purchasing power as inflation increases living costs.
The COLA was implemented in 1975 as a mechanism to automatically adjust Social Security benefits for inflation. Before this, benefit increases depended on legislative decisions. With the introduction of the COLA, adjustments became automatic, ensuring that benefits reflect changes in the cost of living.
At the beginning of 2024, Social Security benefits increased by 3.2%. However, next year’s cost-of-living adjustment may not be as high. Initial projections suggest an increase of 2.63%, although this figure could vary depending on how inflation evolves during the third quarter of the year.
The first thing you should prepare for, then, is for a smaller increase than you would imagine, which may possibly fall short based on the inflation accumulated in the last fiscal year.
Higher income limits for new beneficiaries
Older people generally obtain income from a job, because these types of benefits are not designed to cover all pre-retirement income. In fact, it is allowed, and it is not illegal at all, or anything like that, but there are limitations that must be respected.
If they exceed the annual limit, a portion of their Social Security benefits will be withheld, although these benefits will be refunded once full retirement age is reached.
In 2024, the income limit is set at $22,320. However, if you plan to reach full retirement age before the end of the year, the limit is higher, at $59,520.
By 2025, this income limit will likely increase, allowing you to earn more money without your Social Security benefits being negatively affected. Therefore, if you are considering increasing your work hours or taking on an additional job, it might be wise to wait until January to do so.
Social Security Taxes – Changes in salary limits
Social Security is largely funded by payroll taxes paid by working-age people, and in 2024, the limit on that is $168,600. That limit is likely about to increase in 2025.
If you don’t expect to earn more than $168,600 in 2025, there’s no reason to worry. However, if your income is higher, now might be a good time to speak with a tax advisor and explore strategies to help reduce your overall tax burden.
And if there’s not much you can do about it, you may want to plan your budget carefully, keeping in mind that more of your salary could be subject to Social Security taxes next year.
Obtaining work credits is going to cost you much more money in 2025
To qualify for Social Security benefits, from age 62 onwards, you must have earned a certain amount of time over your working years. You can only collect benefits without working in certain exceptions, such as spousal benefits. But if that’s not an option, then you want to make sure you earn enough to qualify for benefits when you’re older.
For that to happen, you need to accumulate 40 work credits throughout your life, and you can only earn up to four per year. In other words, to reach that golden pot of work credits, you must work for at least 10 years.
The current value of a work credit is $1,730. However, in 2025, you will likely need to earn more to get a single credit. If you work part-time and are trying to qualify for Social Security, it’s important to pay attention to the new credit income requirement. You may need to increase your work hours to ensure you earn the four credits you need next year.
