As we step into 2025, you may be setting financial goals for the year and putting together your to-do list. While you’re at it, you should also keep tabs on the Social Security changes coming this year. These updates could impact you, whether you’re still working or already retired.

To help you prepare, I’ve pinpointed three big changes the Social Security Administration (SSA) announced in October.

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1. Social Security benefits will get a boost, thanks to COLA

I’ll kick off next year’s Social Security changes with one of the most anticipated updates — the annual cost-of-living adjustment (COLA). The COLA helps beneficiaries keep their buying power from one year to the next.

In 2023, we saw a big 8.7% COLA, while 2024 brought a smaller 3.2% increase. For 2025, the bump will be even smaller at 2.5%, which is the tiniest increase since 2021. However, this adjustment aligns closely with the 2.6% average COLA over the past decade.

What does that mean for your wallet? On average, Social Security retirement benefits will rise by about $50 per month starting in January 2025. But if you factor in Medicare Part B payments, your net increase will be smaller.

While Social Security beneficiaries look forward to the annual COLA, next year’s increase isn’t exactly a game changer. In fact, 54% of retirees in a recent Motley Fool survey said the 2025 COLA won’t be enough to keep up with the cost of essentials.

The bright side? A smaller adjustment reflects cooling inflation, compared to recent years. Prices are still rising, but not as steeply as they did in 2022 and 2023.

2. You can earn more before Social Security benefits are reduced

Are you working and collecting Social Security benefits? You’re not alone.

The the average Social Security check is $1,925.46, as of November 2024, so it’s no shock that many retirees find it tough to cover the bills if that’s their only source of income. That’s a big reason half of retirees are thinking about heading back to work, according to the Motley Fool survey mentioned earlier.

If you’re working and collecting benefits, though, there’s a cap on how much you can earn before your benefits take a hit. One limit applies if you claim Social Security before full retirement age (FRA), which is 67 for those born in 1960 or later. Another limit kicks in if you reach FRA in 2025.

Here’s the good news: The earnings limits are increasing in 2025. That means you can earn more money before Social Security starts reducing your benefits. Here’s a breakdown of the earnings limits:

• For early filers: For those who claim benefits before reaching FRA, the earnings-test limit will rise to $23,400 in 2025, up from $22,320 in 2024. After your earnings surpass $23,400, SSA will take $1 from your benefits for every $2 you earn above that limit. For example, if you expect to earn $40,000 from work in 2025, that’s $16,600 over the limit. As a result, your Social Security benefits would be reduced by $8,300 for the year.

• For those reaching FRA in 2025: The earnings-test limit is higher for those reaching FRA. It will increase to $62,160 in 2025, up from $59,520 in 2024. Above this threshold, the SSA will withhold $1 for every $3 you earn.

If you’ve already reached FRA, you’re off the hook — the earnings test won’t apply anymore. Even better, any benefits withheld earlier due to the earnings test will be returned to you through higher monthly checks.

3. High earners will pay Social Security taxes on more income in 2025

Not retired yet? If you’re a high earner, you’ll want to keep an eye on Social Security’s maximum taxable earnings limit. It’s going up in 2025, which means a bigger slice of your paycheck will go toward Social Security taxes. Sure, paying more taxes isn’t exactly something you’re probably looking forward to, but this extra cash helps fund benefits for current and future retirees.

Here’s the deal: In 2024, the taxable earnings cap is $168,600. But in 2025, it’s climbing to $176,100.

Each year, the government sets a cap on how much of your earnings can be taxed for Social Security. This cap isn’t tied to inflation like cost-of-living adjustments (COLAs). Instead, it’s based on changes in the national wage index.

The start of a new year is the perfect time to review your finances and get ready for the changes ahead. Whether you’re retired or still punching the clock, a little planning now can make 2025 a smoother ride.

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