Every new year comes with changes for everyone, and Social Security won’t be the exception. According to the federal agency, in less than two weeks the Social Security system will see two major changes that will directly impact retirees and other beneficiaries in the country.
While some Social Security changes only affect specific groups of people, others affect a large number of existing or prospective claimants.
As 2025 approaches, there are two significant shifts to be mindful of concerning the latter. Benefits are worth learning about even if you aren’t receiving them right now since they can still be important for your retirement plans in the future.
The SSA Announced Two Important Surprises That Will Impact Retirees in January 2025
Monthly paychecks will increase for more than 72 million beneficiaries
In 2025, the biggest shift to Social Security payouts should be positive. The Social Security cost-of-living adjustment (COLA) will increase the monthly income for all current recipients. It is important to note that the purpose of the annual COLA is to counteract the impacts of inflation. The cost of most products and services, including housing, food, and clothing, appears to be rising gradually. Additionally, it has a greater effect on people who rely on fixed incomes like Social Security.
The good news is that starting in January 2025, recipients can anticipate a 2.5% rise in their monthly benefits. Although a 2.5% increase may be worse, it is less than the average COLA since it became annual in 1975. Benefits staying the same have happened a few times, but that is more of an exception than the rule. The last 10 COLAs are listed below:
| Year | COLA increase |
| 2015 | 1.70% |
| 2016 | 0% |
| 2017 | 0.30% |
| 2018 | 2% |
| 2019 | 2.80% |
| 2020 | 1.60% |
| 2021 | 1.30% |
| 2022 | 5.90% |
| 2023 | 8.70% |
| 2024 | 3.20% |
Social Security calculates the COLA for the following year using the inflation figures for July, August, and September of the previous year. Inflation hasn’t been as high as it has been in recent years, although the 2.5% COLA seems reasonable. I’m sure many retirees don’t mind making this sacrifice.
Beneficiaries Will Have to Pay More Taxes on Their Social Security Paychecks
A great deal of American workers pay Social Security payroll taxes throughout their working lives. If you have an employer, you and your spouse each pay 6.2% of the 12.4% Social Security tax. If you work for yourself, you are responsible for the entire 12.4%. The good news is that some workers’ earnings may not be subject to Social Security payroll taxes up to a certain amount, known as the wage base limit.
The wage base limit was set at $168,600 in 2024, but it will increase to $176,100 in 2025. This means that the higher incomes of certain workers will be subject to Social Security payroll taxes.
For example, if your income in 2024 is $175,000, the SSA will exempt around $6,400 from your payroll taxes. On the other hand, because $175,000 is below the new earnings base limit, all of it will be taxable in 2025. Here you will find the last ten wage limits in the US:
| Year | Wage Base Limit |
| 2015 | $118,500 |
| 2016 | $118,500 |
| 2017 | $127,200 |
| 2018 | $128,400 |
| 2019 | $132,900 |
| 2020 | $137,700 |
| 2021 | $142,800 |
| 2022 | $147,000 |
| 2023 | $160,200 |
| 2024 | $168,600 |
For those who want to obtain the highest monthly benefit ($5,108 in 2025), it is crucial to understand the yearly wage base limit in addition to the tax issues.
You must earn more than the salary base limit during the 35 years that Social Security uses to determine your monthly benefit, and you must wait until 70 (the latest age at which benefits grow by waiting) to be eligible for the maximum amount. Although current Social Security claimants are not directly impacted by wage base limits, it is nonetheless worthwhile to stay updated on yearly adjustments as they can provide insight into the program’s direction and overall health.
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