Social Security is one of the biggest topics of debate in politics these days. Without a substantial change to the program, the Social Security Administration will have to cut benefits for tens of millions of retirees.

With just two months left in 2024, it’s unlikely Congress is capable of making any major overhauls to the program by the end of the year. But every American needs to be aware of built-in changes to the existing program that could have a big impact on your financial planning for 2025.

Both retirees and workers need to stay up to date on the latest changes. If you’re not ready on Jan. 1, these new updates could take you by surprise. Here are three of the biggest updates to be aware of before the new year.

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1. Recipients will get a raise

Every year, Social Security adjusts retirement benefits for inflation by instituting a cost-of-living adjustment, or COLA. The 2025 Social Security COLA is 2.5%, so most beneficiaries should expect to see a small bump in their monthly checks.

The COLA is tied to a subset of the Consumer Price Index called the CPI-W, which tracks the cost of a set of goods and services reflecting the spending patterns of the average urban wage earner or clerical worker. The Social Security Administration takes the average increase in the CPI-W during the third quarter to determine the COLA for the next year.

2025’s 2.5% COLA is smaller than the last few years as a result of slowing inflation. Still, many seniors continue to feel the pressure of the rising cost of goods and services from the last few years. Meanwhile, Medicare premiums continue to rise, further eating into the increase in Social Security benefits.

If you were hoping for a substantial COLA to help overcome the higher costs for just about everything these days, it’s time to prepare a new plan. Figure out where you could cut back or a way you might be able to earn more.

2. Some workers will have to pay more in Social Security taxes

If you’re a high earner, you probably don’t have to pay Social Security taxes on the entirety of your income. For 2024, any wages earned above $168,600 aren’t subject to the tax. For 2025, that amount will climb to $176,100.

That means anyone earning above $176,100 in both 2024 and 2025 will see an extra $465 deducted from their paycheck over the course of the year next year. (Your employer will also have to pay an extra $465 in payroll taxes.)

It’s also worth pointing out the increase in wages subject to Social Security tax is higher than the cost-of-living adjustment for benefits. That will often be the case because the increase is based on wage inflation instead of price inflation. Wage growth usually outpaces price inflation as the standard of living typically increases over time. As such, young workers can expect more and more of their wages to become taxable over time.

3. You can earn more while collecting early Social Security benefits

If you’re working while collecting early Social Security benefits, you may be subject to the Social Security earnings test. The test applies to anyone who has yet to reach full retirement age.

The way it works is if you earn over a certain threshold in income during the year while collecting benefits before reaching full retirement age, the Social Security Administration will start reducing the amount you receive each month. The amount of the reduction is $1 for every $2 earned above the threshold during years before you reach full retirement age. That’s lowered to $1 for every $3 earned above the threshold during the year you reach full retirement age.

For 2024, the earnings threshold is $22,320. There’s a higher threshold for earnings during the year you reach full retirement age: $59,520. Next year, beneficiaries will be able to earn up to $23,400 or $62,160 respectively without impacting their Social Security check.

Note that the Social Security Administration will adjust your benefits upon reaching full retirement age to account for the amount of withheld benefits due to the earnings test. For example, if it withheld six months worth of benefits from when you claim until full retirement age, it would adjust your benefit as if you delayed your initial claim by six additional months. This can often work out to your benefit over the long run.

While not all of these changes will impact everyone, it’s worth taking the time to figure out how the ones that do will affect your financial plans. Preparing now for the changes could make your life a lot easier come January.

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