Get ready for three big Social Security changes coming in January 2025

Social Security is a hot issue in politics these days. Without reform, the program may have to cut benefits for millions of seniors who rely on the program to make ends meet and even more Americans who have already paid into the program.

While we’re unlikely to see any major overhauls of Social Security before the end of 2024, the program has some built-in changes that go into effect at the beginning of each year. And if you’re not careful, you might end up surprised. Given the importance of the program to everyone — retirees and workers alike — it’s important to stay on top of the latest changes. Here are three big Social Security changes coming in January.

Image source: Getty Images.

1. The beneficiaries will receive a salary increase

Social Security receives an annual cost-of-living adjustment (COLA), which increases the monthly benefits retirees receive.

The way the Social Security Administration calculates COLA is based on the increase in a subset of the consumer price index (CPI) in the third quarter of each year. We won’t get the final COLA numbers until October, when the Bureau of Labor Statistics releases inflation data for September.

That said, inflation has slowed considerably from the high inflation we’ve seen since 2021. Right now, the Senior Citizens League is forecasting a COLA of 2.6%. This is certainly a slowdown from the last few years, but slow and steady inflation is usually better for the purchasing power of Social Security benefits compared to hyperinflation. Not to mention, that number is well above the Fed’s long-term inflation target of 2%. So the 2025 increase could leave seniors better off.

2. The full retirement age will increase

Seniors who wait to apply for Social Security until they can receive their full benefit may be waiting longer than they realize. That’s because we’re currently in a time where the full retirement age is increasing every year.

In 1983, Congress passed a law slowly pushing the full retirement age up to 67. Those born in 1954 reached full retirement age at 66, but the age increases by two months for each year someone was born after 1954 until anyone reaches age 67. born in 1960 or later. So in 2025 anyone born in 1958 will reach full retirement age at 66 and 8 months, and those born in early 1959 will reach full retirement age at 66 and 10 months.

Full retirement age is an important number because it is critical in determining your monthly benefit. Even if you don’t wait until full retirement age to claim benefits or decide to wait until age 70, your full retirement age determines the size of the penalty (for claiming early) or the late retirement credit (for claiming later) . Therefore, it is important for everyone to be aware of the full retirement age.

3. Some workers will pay more in Social Security taxes

Most people pay into Social Security with a tax of 6.2% of their wages. Employers will match the tax rate, your total contribution to the program is about 12.4% of your salary. However, some high earners do not have to pay Social Security taxes on their entire salary.

The Social Security Administration caps taxes at maximum taxable earnings. The amount is adjusted each year based on the previous year’s salary inflation. For 2024, the maximum taxable earnings was $168,600. Any earnings above this level are exempt from social security taxes.

The SSA won’t have the data it needs until October, but similar to COLA, workers can expect a more modest increase in maximum earnings than in previous years due to lower inflation. However, don’t be surprised to see your tax bill go up next year if you earn above the 2024 limit.

While most of the changes will impact seniors who have already applied or are planning the best time to apply for Social Security, workers shouldn’t ignore the impact of annual changes in Social Security either.