As the November election approaches, the spotlight is on the presidential candidates and their potential influence on the future of Social Security. However, irrespective of the election outcome, certain changes to Social Security are set to take effect in 2025.
Here are five key aspects of the program that will be impacted:
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1. Increase in Retirees’ Checks
The first significant change affects current retirees. Senior citizens receiving Social Security benefits will see an increase in their payments next year due to automatic cost-of-living adjustments (COLA) designed to counterbalance the decreasing purchasing power. These adjustments are calculated using a formula based on changes in a consumer price index. Analysts currently predict a 2.6% rise, with the exact figure to be confirmed in October after reviewing third-quarter data.
2. Earnings Requirement for Work Credits
Social Security operates as an “earned benefits” program, requiring individuals to accumulate 40 work credits to qualify for benefits, with a maximum of four credits earned per year. In 2024, you must earn $1,730 for a single work credit, totaling $6,920 to earn all four credits. This threshold increases annually to reflect wage growth; for instance, in 2023, a credit was obtained with $1,640. Workers with lower incomes should note this forthcoming change to ensure they accumulate enough credits for future retirement benefits.
3. Earnings Limit Without Affecting Benefits
Individuals who have reached their full retirement age can work without their Social Security benefits being affected. However, those below this age face restrictions. Surpassing a specific earnings threshold results in the forfeiture of some Social Security payments, although the benefits are recalculated and restored at full retirement age. The earnings cap is expected to rise in 2025, allowing individuals to earn more without losing benefits. The current limit is $22,320 for 2024, with the 2025 figure yet to be announced.
4. Age Requirement for Claiming Full Benefits
Near retirees will face a notable change in 2025 regarding the age for claiming full benefits without penalties. The full retirement age is gradually increasing; individuals turning 66 in 2024 can claim full benefits at 66 and 8 months, while those reaching 66 in 2025 must wait until 66 and 10 months to avoid early filing penalties. This adjustment stems from a 1983 law aimed at bolstering Social Security’s financial health.
5. Income Subject to Social Security Tax
High earners might not favor this change, as the maximum income subject to Social Security tax will rise in 2025. The cap, set at $168,600 for 2024, is adjusted for inflation and will increase next year. Consequently, individuals earning above this threshold in 2025 will face a larger Social Security tax obligation.
These adjustments arise from Social Security’s inflation provisions and longstanding legislative decisions. Regardless of the election results, seniors and future retirees must prepare for these changes.
Summary:
In 2025, changes to Social Security will occur irrespective of electoral outcomes. These include increased retirees’ benefits, higher earnings requirements for work credits, adjusted earnings limits affecting benefits, a shift in the age for claiming full benefits, and a rise in the income subject to Social Security tax.
