Social Security serves as a significant income source for many retired individuals. However, Americans tend to perform poorly when tested on their understanding of the Social Security system.
For example, Social Security benefits are set to receive a cost-of-living adjustment in 2025, and some employees will see an increase in the amount of taxes they contribute to the program. Nevertheless, a survey conducted by the Nationwide Retirement Institute in 2024 indicates that these changes may catch the majority of Americans off guard.
Continue reading to find out more.
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In 2025, there will be an increase in Social Security benefits to adjust for the cost of living.
As per the Nationwide Retirement Institute, 66% of adults surveyed mistakenly believed that “Social Security does not have protection against inflation.” It is somewhat unexpected that this misconception exists, especially given the economic conditions. Gallup, a polling organization, has reported that inflation has been identified as the biggest financial concern by American households for the past three years.
Fortunately, Benefits provided by the government to individuals who have reached retirement age or are disabled. Indeed, they are shielded from the effects of inflation. Beneficiaries receive yearly. increases in the cost of living Ensuring that benefit income increases in line with inflation is essential to prevent Social Security benefits from losing their purchasing power over time. Without these regular adjustments, the amount of goods and services that can be purchased with a fixed benefit amount would decrease. As an example, what $500 could buy in June 2014 would now require around $659, based on data from the Labor Department.
The official Cost of Living Adjustment (COLA) for Social Security in 2025 will not be determined until mid-October. However, The Senior Citizens League predicts that benefits will go up by 2.6% next year. This projection is consistent with the COLA forecast provided by the Social Security Board of Trustees. If this estimate holds true, it will mark the lowest increase for retired individuals since 2021 and will be below the average raise of 2.75% over the past decade.
In December, Social Security beneficiaries will be sent a notice in the mail informing them of their revised benefit amount for 2025. Alternatively, they can access this information online through the Message Center on their account. my retirement benefits account.
In 2025, certain employees will contribute a higher amount of taxes towards the Social Security program.
As per the findings of the Nationwide Retirement Institute, 74% of adults surveyed mistakenly believed that workers are required to pay Social Security taxes on their entire income. This misunderstanding can be attributed to the assumption that the payroll tax, which primarily funds Social Security, should be applied uniformly across all income levels. However, the reality is that the system does not operate in this way.
The existing legislation restricts the amount of income that is subject to the Social Security payroll tax, which results in certain workers… do not Individuals are required to pay Social Security tax on all the money they earn. This issue is viewed as problematic by a number of experts and politicians, as workers with income exceeding a certain limit end up being taxed at a reduced rate. Consequently, various changes have been suggested to address this issue.
Regardless, the maximum amount of earnings subject to taxation is revised annually to reflect fluctuations in average wages. The threshold for taxable income is set at $168,600 for the year 2024. This implies that individuals will be required to pay Social Security tax on all earnings up to this figure, usually at a 6.2% rate, while self-employed individuals are subject to a 12.4% rate. However, any income exceeding $168,600 is currently exempt from taxation.
The Social Security Administration will reveal the new taxable maximum for 2025 in mid-October alongside the announcement of the 2025 COLA. According to the trustees’ projection, the taxable maximum is expected to reach $174,900 in the upcoming year. This implies that certain employees may have to pay Social Security tax on an extra $6,300 of their earnings. If we consider a tax rate of 6.2%, these employees might end up paying as much as $390.60 in additional Social Security taxes in 2025.
