Three Social Security Changes Coming in January – Prepare Now

As we move past the midpoint of 2024, it’s a great time to start preparing for the financial landscape of 2025. One critical program to keep an eye on is Social Security, which undergoes annual changes impacting both retirees and working Americans. Here are three nearly guaranteed changes in Social Security for 2025 that you should prepare for:

Benefits

Social Security benefits receive an annual cost-of-living adjustment (COLA) to help seniors maintain their purchasing power amid inflation. In 2024, benefits increased by 3.2%, following an 8.7% hike in 2023. However, the COLA for 2025 is projected to be around 2.63%, lower than the previous years. While this is not the smallest increase on record, it is a decrease compared to recent years.

COLAs are based on third-quarter inflation data, so the exact figure for 2025’s increase will be confirmed later in the year. If you’re currently receiving Social Security, this 2.63% estimate can help you plan your finances. If you’re not thrilled with this smaller increase, consider cutting expenses or supplementing your income through the gig economy.

Taxes

Social Security’s primary funding comes from payroll taxes, but higher earners don’t pay these taxes on all their income due to a wage cap. For 2024, the wage cap is set at $168,600. Earnings above this amount are not subject to Social Security taxes. However, this cap tends to rise annually with inflation and wage growth.

In 2025, higher earners will likely see an increase in the wage cap, meaning they’ll pay more in Social Security taxes. If you fall into this category, consult with an accountant to look into tax strategies such as maximizing retirement contributions or strategically taking investment losses to offset taxable income.

Eligibility

To qualify for Social Security benefits, seniors need to accumulate 40 work credits over their lifetime, with a maximum of four credits per year. In 2024, one work credit equates to $1,730 in earnings. This threshold is expected to increase in 2025, which could make it harder for very part-time workers to earn the necessary credits.

However, full-time workers should not be significantly affected, as even a full-time minimum wage job typically secures the required four credits annually. If you work part-time but aim to qualify for Social Security, consider increasing your hours to ensure you meet the new threshold.

Preparation

These upcoming changes highlight the importance of staying informed about Social Security updates. Whether retired or still in the workforce, knowing these adjustments can help you plan effectively. If you expect to be affected by these changes, take proactive steps now, such as adjusting your tax strategies or finding ways to save more.

Staying ahead of these shifts will help you navigate the financial implications and ensure that your retirement plans remain on track. By preparing now, you can mitigate potential challenges and secure a more stable financial future.

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