benzinga.com
fool.com
The Social Security program undergoes a series of revisions each year to ensure benefit payments keep pace with inflation and wages. The latest round of revisions took effect in January, and a recent survey published by Nationwide Retirement Institute suggests some of the changes will surprise many Americans.
Read on to learn about three important updates to the Social Security program in 2025.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »
Image source: Getty Images.
1. Social Security payments got a COLA in 2025 to protect benefits from inflation
A 2024 Nationwide Retirement Institute survey found that 66% of adults did not know Social Security benefits were protected from inflation. Fortunately, the purchasing power of Social Security is indeed shielded from inflation. Retired workers and other beneficiaries get annual cost-of-living adjustments (COLAs) that help them keep pace with rising prices.
Those annual COLAs are determined by a subset of the Consumer Price Index known as the CPI-W. Here’s how the calculation works: The CPI-W from the third quarter of the current year (July through September) is divided by the CPI-W from the third quarter of the previous year, and the percent change becomes the COLA in the next year. Importantly, COLAs can only be positive, so benefit payments will not decrease if deflation occurs.
CPI-W inflation increased 2.5% in the third quarter of 2024, so Social Security benefits received a 3.2% COLA in 2025. The following chart shows how much additional monthly income, on average, different beneficiaries will receive in 2025.
|
Type of Beneficiary |
Average Benefit Before COLA |
Average Benefit After COLA |
Additional Income |
|---|---|---|---|
|
Retired Workers |
$1,925 |
$1,974 |
$48 |
|
Spouses |
$909 |
$931 |
$23 |
|
Survivors |
$1,508 |
$1,546 |
$38 |
|
Disabled Workers |
$1,542 |
$1,581 |
$39 |
Data source: Social Security Administration. Pre-COLA amounts reflect the average benefit paid out in November.
2. Some workers will pay more Social Security taxes in 2025
A 2024 Nationwide Retirement Institute survey found that 74% of adults incorrectly believed workers must pay Social Security taxes on all their income. Also, 68% of adults incorrectly marked the following statement as false: “Somebody who makes $200,000 pays as much in Social Security taxes as millionaires.”
The amount of income subject to Social Security’s payroll tax is capped under current law. But the maximum taxable earnings limit generally increases each year to account for changes in the average wage. For instance, the maximum taxable earnings limit increased to $176,100 in 2025, up from $168,600 in 2024.
That means workers with earnings that exceed $176,100 this year will not pay Social Security taxes on all their income. Consequently, someone that makes $200,000 will pay the same amount in Social Security taxes as someone that makes $1 million or even $100 million.
Importantly, the Social Security payroll tax rate is 6.2% for the vast majority of workers. So, the maximum tax burden in 2025 is $10,918.20. That number is the product of $176,100 multiplied by 6.2%. Comparatively, the maximum tax burden in 2024 was $10,453.20. That means some workers will owe an additional $465 in Social Security taxes this year.
3. The Social Security Fairness Act was signed in January 2025
President Biden on Jan. 5 signed into law the Social Security Fairness Act. That is undoubtedly the most surprising change to take effect this year because it repeals two long-standing provisions: the Windfall Elimination Provision and the Government Pension Offset. Both rules reduced benefits for certain workers that receive public pensions from jobs not subject to Social Security taxes.
The Social Security Fairness Act impacts about 3.2 million people that simultaneously earned income from a job covered by Social Security and a job covered by a public pension, including some retired teachers, law enforcement officers, and firefighters. The benefits paid to affected recipients will increase by an average of $360 per month, according to estimates from the Congressional Budget Office.
The Social Security Administration is working to implement the new law but has yet to provide a timeframe regarding when benefits will be adjusted. Importantly, once the process is finalized, the adjustments will be applied retroactively to benefits payable in January 2024. In most cases, retired workers need not take any action, but more details are available from the Social Security Administration’s website.
The $22,924 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
View the “Social Security secrets” »
The Motley Fool has a disclosure policy.
