3 big social security changes that will take place in 2025 surprise retirees

Millions of retired workers depend on Social Security to cover their monthly expenses, and that’s unlikely to change. A recent survey from MassMutual found that 2 in 5 adults ages 55 to 65 expect benefits to be their largest source of income during retirement.

However, Americans typically score poorly when questioned about their knowledge of the Social Security program. This is problematic because even small misunderstandings can lead to significant financial mistakes.

Social Security will undergo several changes in 2025 to ensure that benefit payments stay in line with wages and inflation, and three of those changes could catch many Americans by surprise. Read on to learn more.

Image source: Getty Images.

1. The Social Security taxable income limit will rise, so some workers will pay more taxes on their income in 2025

The National Retirement Institute’s 2024 Social Security Survey found a lack of knowledge about payroll taxes. Specifically, 74% of participants incorrectly marked the following statement as true: “Workers pay Social Security taxes on all their income.”

That misunderstanding is sensitive. Social Security is primarily funded by a dedicated payroll tax, and common sense says that it should apply equally to all incomes. But current law actually caps the amount of taxable income, meaning people with incomes above the threshold don’t pay Social Security taxes on all of their wages.

This threshold, called the maximum taxable earnings limit, is $168,600 in 2024. However, the limit is adjusted annually based on changes in general wage levels. The maximum limit of taxable earnings for previous years is detailed in the table below.

Data source: Social Security Administration.

The Social Security payroll tax rate is 6.2% for most workers. The only exception is natural persons carrying out independent activities, who are taxed at 12.4%. That means most workers will pay up to 6.2 percent of $168,600 in Social Security taxes this year, so they could owe up to $10,453.20.

The updated maximum taxable earnings limit for 2025 won’t be announced until October, but the Social Security Administration expects it to rise to $174,900. If this forecast is accurate, the maximum amount most workers will pay in Social Security taxes next year will rise to $10,843.80, meaning some people will see an additional $390.60 deducted from their paychecks in 2025.

2. Social Security will receive a cost-of-living adjustment (COLA) to protect the purchasing power of benefits in 2025

According to the Nationwide Pension Institute, 66 percent of adults surveyed incorrectly marked this statement as true: “Social Security is not inflation-proofed.”

Social Security is indeed protected from inflation through annual cost-of-living adjustments (COLAs). That so many participants answered incorrectly is surprising given that price gouging has been a serious problem since the Covid pandemic. Indeed, 41 percent of adults surveyed by Gallup listed inflation as their top financial concern in 2024. That was up from 35 percent in 2023, which rose from 32 percent in 2022.

The Social Security Administration won’t announce the official 2025 COLA until October, but the Seniors League expects benefits to increase 2.6 percent next year. The chart below illustrates how the estimated COLA would impact average monthly payments for different types of beneficiaries.

Data source: Social Security Administration. Benefit amounts have been rounded to the nearest dollar.

Social Security recipients should receive a COLA notice in the mail in December detailing their updated benefit amount for 2025. Alternatively, recipients can find this information online in their Message Center. my social security account.

3. Social Security recipients under full retirement age can earn more money before benefits are withheld in 2025

According to the Nationwide Retirement Institute, 46 percent of adults surveyed mistakenly marked the following statement as false: “Some of your benefits can be withheld if you’re still working before retirement age (FRA).”

That statement is factual. Covered workers become eligible for Social Security at age 62, whether or not they are still in the workforce. However, active workers claiming Social Security will have a portion of their benefits withheld while below the FRA if their earnings exceed certain levels.

There are actually two separate limits, called Retirement Income Test (RET) exempt amounts. The lower limit applies to workers who will not reach FRA during the year, and the upper limit applies to workers who will reach FRA during the year. In 2024, the lower limit is $22,320 and the upper limit is $59,520.

This means that Social Security recipients under the FRA for the entire year will have $1 in benefits withheld for every $2 in earnings above the lower limit. Also, Social Security recipients who hit the FRA this year will have $1 in benefits withheld for every $3 in earnings above the upper limit.

The amounts exempt from RET are updated annually according to changes in general wage levels. The official amounts for 2025 will be announced in October, but trustees estimate the lower limit at $23,280 and the upper limit at $61,800 next year. This means that Social Security recipients under the FRA will be able to earn more money before benefits are withheld.