If you’re one of the roughly 80 million Americans currently receiving Social Security, you should be aware of some changes that go into effect on January 1 of the new year.
Good news for retirees: Yes, your pay will increase.
This is great news considering the Biden economy and the rampant inflation that has eaten up about 20% of our income.
The cost of living adjustment (COLA) in 2025 is small; at 2.5% – But as retirees know, every little thing helps. Depending on your current payments, this increase can range from $50 to $1,975 per month.
Bad news for workers: Yes, it’s your pay. It was done go up
Folks, the money for Social Security has to come from somewhere. And somewhere in that is workers’ payroll taxes. Currently it is 12.4%.
The good news is that this tax has an income cap. The bad news is that that limit is being raised. Previously, workers paid 12.4% tax on income up to $168,000, but now they will pay tax on income up to $176,000.
Note that this only affects Approximately the top 6% of payroll taxpayers; However, it is very important for self-employed entrepreneurs.
Even better news: Maximum monthly benefit increases
As most people know, you can retire at age 62. However, if you wait until age 70, your monthly income will increase.
The new maximum payout is $4,018.
Withholding thresholds for benefits for early applicants and income thresholds for disability will be increased.
This can get a little complicated, so let me introduce you to The Motley Fool and explain.
For early filers: “Early filers who do not reach full retirement age in 2024 will have their benefits deducted at $1 for every $2 of earned income over $22,320, resulting in $1,860 per month. Early filers who are underage can get up to $23,400 ($1,950 per month) without withholding.
“Tax withholding thresholds vary significantly for workers who: intention For early filers in this category, benefits can be deducted at $1 for every $3 of earned income over $62,160 ($5,180 per month) this year. This is up 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 will be able to earn $1,620 in outside income without penalty.
Both of these increases are very small, but as anyone receiving a bond knows, every dollar helps.
Unfortunately, work credits for benefits are increasing.
To greatly simplify a complex system, Social Security essentially works by granting deductions based on a worker’s income. When you earn a certain amount of money, it counts as “credits,” but you can only earn 4 of those credits in a year, and you ultimately need 40 credits to collect Social Security in retirement.
In the future, the “cost” of these credits will increase. Previously, you earned the credit by bringing in $1,730 in income. This year, that number increases slightly to $1,810.
That means you’ll need to earn at least $7,240 in 2025 to earn the maximum number of credits (sorry).
Social Security Overview
- Most Social Security recipients are not actually retirees. More than 53% of recipients were between the ages of 18 and 64.
- 55% of Social Security recipients are women.
- In 1970, approximately 25 million Americans were receiving Social Security. Today, that number is well over 70 million.
- In 2023, Social Security paid out $1.35 trillion.
- Social Security spending accounts for approximately 22% of the total federal budget.
