Social Security is going to look very different once the new year kicks off.
Did you know that Social Security is 89 years old? The Social Security Act was signed in August 1935 to provide benefits for older Americans, and the program has been going (relatively) strong ever since.
But despite the fact that Social Security has been around for nearly a century, its rules tend to change from one year to the next. Here are three ways Social Security is changing in 2025 — and how they might have an impact on you.
1. Benefits are getting a 2.5% cost-of-living adjustment
Each year, Social Security benefits are eligible for an automatic cost-of-living adjustment (COLA). This doesn’t mean that benefits actually increase every year — that depends on inflation. Rather, it’s that benefits have the potential to go up if changes in inflation levels warrant it.
In 2024, inflation wasn’t nearly as rampant as it was in recent years. But it rose just enough to allow for a 2.5% COLA for 2025. That increase should boost the average monthly benefit by about $50.
However, seniors enrolled in Social Security and Medicare at the same time will need to take an increase in the cost of Medicare Part B into account before banking on that extra money. Enrollees in both programs have their Part B premiums deducted from their monthly benefits automatically, so an increase in Part B will leave you with a bit less money in your pocket.
2. The earnings-test limits are rising
There are plenty of benefits to holding down a job during retirement. Not only might the extra income help you manage your bills, but a job might give you a good reason to get out of the house and socialize. So there’s value in having one, even if you don’t really need the money.
There’s no problem with earning money from a job while receiving Social Security benefits. And once you reach full retirement age, you can earn any amount of job-related income without it negatively impacting your monthly payments. But if you haven’t reached full retirement age and continue to work while receiving Social Security, you’ll be subject to the program’s earnings-test limits.
In 2025, you can earn up to $23,400 without seeing any of your Social Security benefits withheld. That’s an increase from $22,320 in 2024. From there, you risk having $1 in Social Security withheld per $2 of earnings.
If you’ll be reaching full retirement age at some point in 2025, you get a higher earnings-test limit to work with — $62,160, up from $59,520 in 2024. From there, you risk having $1 in Social Security withheld per $3 of earnings.
Do keep in mind that if you exceed the earnings-test limit, you won’t be forfeiting your withheld benefits permanently. You should get that money back once you reach full retirement age.
But remember, you face a permanent reduction to your Social Security benefits if you claim them prior to full retirement age. It would be a shame to take that hit only to not even get those reduced benefits paid to you in full. For this reason, it pays to be mindful of the earnings-test limit and try staying below it.
3. The wage cap for Social Security taxes is going up
Social Security is funded primarily by payroll taxes. Each year, there’s a wage cap set that dictates how much income gets taxed for Social Security purposes.
In 2024, that cap sat at $168,600. In 2025, it’s rising to $176,100. So clearly, this change will only affect higher earners.
And if you’re unhappy about having to pay Social Security taxes on more of your income, remember that some policymakers have suggested doing away with the wage cap altogether, and imposing Social Security taxes on workers’ income in full, no matter what it amounts to. So in that regard, a wage cap of $176,100 may not seem so bad.
Also, the more you pay into Social Security, the higher a monthly benefit you’re eligible for in retirement. So while you don’t benefit on a dollar-for-dollar basis, you do benefit to some degree.
Clearly, there’s a lot happening with Social Security in the new year. Pay attention to these and other changes, since they have the potential to affect your financial picture in a very big way.
