Here are two big Social Security changes retirees need to know heading into 2025

One thing people quickly notice about Social Security is that change is virtually inevitable. Rules change, eligibility requirements change, payments change, and there’s no reason to think this will stop anytime soon — if ever.

Some Social security changes apply only to certain groups of people, but others apply to most current or incoming beneficiaries.

Regarding the latter, there are two big changes to be aware of as we head into 2025. Even if you’re not currently a beneficiary, they’re worth knowing about because they may still be relevant to your future pension schemes.

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1. Monthly benefits will be higher in 2025

The most notable change to Social Security benefits in 2025 should be good news. All current recipients will receive a boost to their monthly benefit thanks to the Social Security Cost Adjustment (COLA).

The annual COLA is intended to offset effects of inflation. Whether it is food, clothing or housing, it seems that the prices of most goods and services are steadily increasing. And it’s even more impactful for those with steady sources of income like Social Security.

Fortunately, beneficiaries can expect a 2.5% increase in their monthly benefits from January 2025.

A 2.5% increase is below the average COLA since it became annual in 1975, but it could be worse. There have been a few cases where the benefits remained the same, but this is more of an anomaly than the norm. Below are the most recent 10 COLAs:

Source: Social Security Administration.

Social Security uses inflation data from July, August, and September of the previous year to determine the coming year’s COLA. So while the 2.5% COLA seems modest, it also means that inflation has not been as high as in recent years. I’m sure many retirees don’t mind making this trade-off.

2. More income will be subject to Social Security taxes in 2025

Most American workers spend their careers paying Social Security taxes. If you have an employer, you both share 12.4% social security tax, paying 6.2% each. If you are self-employed, you are responsible for paying the full 12.4%.

The (slightly) good news is that not all income for some workers may be subject to social security tax – only up to a certain amount, called the wage base.

The new basic wage limit, which takes effect in 2025, is $176,100, up from the $168,600 limit in 2024. This means that more income for some workers will be subject to Social Security taxes.

For example, if you earned $175,000 in 2024, $6,400 would be exempt from Social Security payroll taxes. But if you earn $175,000 in 2025, all of it will be subject to tax because it’s below the new basic wage limit.

Below are the most recent 10 salary base limits:

Source: Social Security Administration.

Aside from the tax implications, it’s important to know the annual base salary limit for people aiming to receive the maximum possible monthly benefit ($5,108 in 2025). To be eligible for the maximum benefit, you must delay applying until age 70 (the latest age at which benefits increase by deferring), and you must have earned above the wage base limit for the 35 years that Social Security uses to calculate your monthly benefit.

Wage base limits don’t directly affect current Social Security recipients, but it’s still worth staying informed about annual changes, as they can give you an idea of ​​the program’s health and direction.

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