Although we’re not exactly nearing the end of 2024, we’ve passed the midpoint of the year. That means it may be time to start looking toward 2025 at all things financial.
Whether you’re retired or not, one financial program you’ll want to keep on your radar is Social Security. Each year, it tends to undergo changes that have the potential to impact seniors and working Americans alike. With that in mind, here are three almost-guaranteed changes to gear up for in 2025.
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Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA. The whole point of COLAs is to help seniors maintain their buying power as things get more expensive due to inflation.
At the start of 2024, Social Security benefits rose 3.2%. The year prior, benefits went up 8.7% in response to the rampant inflation consumers had to deal with in 2022.
But next year’s Social Security COLA isn’t shaping up to be quite as generous as this year’s. The most recent 2025 COLA estimate puts next year’s raise at 2.63%. That’s certainly not the smallest Social Security on record, but it’s a lower raise than recent ones.
Social Security COLAs are calculated based on third-quarter inflation data. Since we’re not even through July, it’s too soon to have a precise number for 2025’s Social Security raise.
However, if you’re a current Social Security recipient, that 2.63% projection should give you an idea of what to prepare for. And if you’re not super happy with that number, you can take steps now to make up for it, such as cutting some expenses or turning to the gig economy for extra income.
Social Security’s primary source of revenue is payroll taxes. But higher earners don’t necessarily pay into the program on all of their earnings. Rather, a wage cap is set each year that dictates how much income is subject to Social Security taxes.
This year, the wage cap is $168,600. This means that someone earning $200,000 a year won’t pay Social Security taxes on their last $31,400 of income.
But the Social Security wage cap tends to rise from year to year in accordance with inflation and wage growth. Come 2025, higher earners should expect to fork over even more Social Security taxes — it’s just a matter of how much.
If you’ll likely to be impacted by an increase in the Social Security wage cap, sit down with an accountant now to work out some tax strategies. Those could include maxing out retirement-plan contributions or taking investment losses strategically to offset ordinary income.
Seniors don’t automatically qualify for Social Security simply by reaching a certain age. To be eligible for benefits in retirement, you’ll need to accumulate 40 work credits in your lifetime, at a maximum of four credits per year.
In 2024, a single work credit is worth $1,730 of earnings. But that threshold is likely to increase in 2025. If you work very part-time but want to qualify for Social Security, you may need to look at increasing your hours to ensure that you’re getting the number of work credits you want.
The good news here, though, is that full-time workers generally won’t be impacted by an increase in the value of a Social Security work credit. Even if that number rises substantially, a full-time minimum-wage salary should be more than enough to secure four work credits in 2025.
These are only some of the Social Security changes that are likely to take place in 2025. Whether you’re retired or not, it pays to keep tabs on the program and see what’s in store. And if you expect any of these changes to affect you, now’s the time to take steps to protect yourself financially, whether by working out a tax strategy or taking steps to conserve cash.
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