Millions of retired workers depend on Social Security to cover their monthly expenses, and that is unlikely to change. A recent survey from MassMutual found that 2 in 5 adults aged 55 to 65 expect benefits to be their largest source of income throughout retirement.
However, Americans typically score poorly when quizzed on their knowledge of the Social Security program. That is problematic because even small misunderstandings can lead to significant financial mistakes.
Social Security will undergo several changes in 2025 to ensure benefit payments remain aligned with wages and inflation, and three of those changes may catch many Americans by surprise. Read on to learn more.
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1. Social Security's taxable earnings limit will increase, so some workers will pay more taxes on their income in 2025
The 2024 Social Security Survey from Nationwide Retirement Institute identified a knowledge gap concerning payroll taxes. Specifically, 74% of participants incorrectly marked the following statement as true: "Workers pay Social Security taxes on all of their income."
That misunderstanding is sensible. Social Security is primarily funded through a dedicated payroll tax, and common sense says it should apply evenly to all income. But current law actually limits the amount of income subject to taxation, meaning individuals with earnings above the threshold do not pay Social Security taxes on all their wages.
That threshold, called the maximum taxable earnings limit, is $168,600 in 2024. However, the limit is adjusted annually based on changes in general wage levels. The maximum taxable earnings limit in previous years is detailed in the table below.
Year | Maximum Taxable Earnings Limit |
|---|
2020 | $137,700 |
2021 | $142,800 |
2022 | $147,000 |
2023 | $160,200 |
2024 | $168,600 |
Data source: The Social Security Administration.
Social Security's payroll tax rate is 6.2% for most workers. The only exception is self-employed individuals, who are taxed at 12.4%. That means most workers will pay up to 6.2% of $168,600 in Social Security taxes this year, so they could owe as much as $10,453.20.
The updated maximum taxable earnings limit for 2025 will not be announced until October, but the Social Security Board of Trustees estimates it will increase to $174,900. If that forecast is accurate, the maximum amount most workers will pay in Social Security taxes next year will increase to $10,843.80, meaning some individuals will see an additional $390.60 deducted from their paychecks in 2025.
2. Social Security will get a cost-of-living adjustment (COLA) to protect the buying power of benefits in 2025
According to Nationwide Retirement Institute, 66% of surveyed adults incorrectly marked this statement as true: "Social Security is not protected against inflation."
Social Security is indeed protected from inflation by annual cost-of-living adjustments (COLAs). The fact that so many participants answered incorrectly is surprising given that rising prices have been a serious problem since the Covid pandemic. Indeed, 41% of adults surveyed by Gallup listed inflation as their greatest financial concern in 2024. That was up from 35% in 2023, which itself was up from 32% in 2022.
The Social Security Administration will not announce the official 2025 COLA until October, but The Senior Citizens League expects benefits to increase 2.6% next year. The chart below illustrates how the forecasted COLA would impact the average monthly payout for different types of beneficiaries.
Type of Beneficiary | Average Benefit (Before COLA) | Average Benefit (After COLA) | Additional Monthly Income |
|---|
Retired Workers | $1,919 | $1,969 | $50 |
Spouses | $910 | $934 | $24 |
Survivors | $1,510 | $1,549 | $39 |
Disabled Workers | $1,539 | $1,579 | $40 |
Data source: Social Security Administration. Benefit amounts have been rounded to the nearest dollar.
Social Security recipients should receive a COLA notice by mail in December detailing their updated benefit amount for 2025. Alternatively, beneficiaries can also find that information online in the Message Center of their my Social Security account.
3. Social Security recipients under full retirement age can earn more money before benefits are withheld in 2025
According to Nationwide Retirement Institute, 46% of surveyed adults erroneously marked the following statement as false: "Some of your benefits may be withheld if you're still working before your full retirement age (FRA)."
That statement is factual. Covered workers become eligible for Social Security at age 62 whether or not they are still in the workforce . However, active workers that claim Social Security will have a portion of their benefits withheld while they are under FRA if their income exceeds certain levels.
There are actually two separate limits, referred to as the retirement earnings test (RET) exempt amounts. The lower limit applies to workers that will not attain FRA during the year, and the higher limit applies workers that will reach FRA during the year. In 2024, the lower limit is $22,320 and the upper limit is $59,520.
That means Social Security recipients under FRA for the entire year will have $1 in benefits withheld for every $2 in earnings above the lower limit. Likewise, Social Security recipients that will attain FRA this year will have $1 in benefits withheld for every $3 in earnings above the upper limit.
The RET exempt amounts are updated annually based on changes in general wage levels. The official amounts for 2025 will be announced in October, but the trustees estimate the lower limit at $23,280 and the upper limit at $61,800 next year. That means Social Security recipients under FRA will be able to earn more money before benefits are withheld.
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