3 Major Social Security Changes in 2025 That Could Impact Your Wallet—Don’t Miss Out

The clock is ticking for Washington Democrats to implement significant Social Security reforms. Without reforms to the program, the Social Security Board of Trustees estimates the trust fund to be depleted by 2033 as withdrawals continue to outweigh inflows. At that point, Social Security tax revenue will only cover 79% of retiree payments. While the program has yet to undergo substantial overhauls, 2025 will bring numerous significant changes that everyone should be aware of. They can affect whether you are retired or still working, get Social Security payments, or have some time before applying for benefits.

Cost-of-living adjustments:

The cost-of-living adjustment (COLA) is an annual increase in Social Security benefits for seniors. The 2.5% COLA for 2025 was announced in October and will take effect in January.

The COLA is based on a subset of the Consumer Price Index called CPI-W. The CPI-W tracks a basket of items representing the spending patterns of the average urban wage earner or clerical worker. The Social Security Administration determines the year-over-year rise in the average CPI-W reading for the third quarter of every year. That figure becomes the COLA for the next year. Significantly, the COLA will affect the benefits of everyone aged 62 and older, regardless of whether they are already receiving benefits. Those who already get benefits will see their monthly checks increase by 2.5% beginning in January. Those who haven’t yet will see their potential benefit increase by 2.5%, in addition to the gain for delaying retirement benefits if they are still under 70.

High incomes will pay a higher Social Security tax:

If you earn a lot of money, you may see a rise in tax withholdings from your paycheck beginning in January. This is because the government limits salaries due to Social Security tax. Every year, the cap rises in line with rising living standards. The earnings cap in 2025 is $176,100. That’s an increase from $168,600 in 2024. 

This implies that anyone earning more than the 2025 maximum will have an extra $465 deducted from their total income this year, or around $17.88 every fortnightly payment. Readers may remark that the rise in the wages cap (as a percentage) exceeds the COLA. This is because the Social Security Administration uses average pay data to determine adjustments in the taxable limit. In other words, the disparity is due to gains in the average quality of life, since incomes have risen faster than prices. The SSA utilizes the same information to update your earnings record for inflation before calculating your retirement payout.

You may earn more at work while receiving benefits:

If you continue to work in your early 60s while receiving Social Security, you may accidentally reduce your monthly payments. This is due to a requirement known as the Social Security earnings test. Anyone receiving Social Security benefits before retirement age is subject to the earnings test. The test will deduct $1 of benefits for every $2 above a particular wage level. In 2025, you can earn $23,400 ($62,160 in the year you reach full retirement age) before receiving a decrease in benefits. That maximum has increased from $22,320 ($59,520) in 2024.