These 3 important Social Security changes were just announced. Did you miss them?

Did you know that Social Security is almost 90 years old? The Social Security Act was signed into law in August 1935, and for decades since then, older Americans have been able to collect monthly benefits.

But just because social security been around for a long time doesn’t mean the program stays the same. The Social Security Administration recently announced a number of key changes to the program that are set to go into effect in 2025. And they’re important to be aware of whether you’re retired or not. Here’s what’s in store for the new year.

Image source: Getty Images.

1. Benefits increase by 2.5%

Each year, Social Security benefits are eligible for an automatic cost-of-living adjustment (COLA). The purpose of COLA is to help ensure that seniors can maintain their purchasing power from year to year as living costs naturally rise.

In 2024, Social Security benefits increased by 3.2%, but next year’s COLA will be lower. Come on in 2025, benefits will only increase by 2.5%. However, it’s worth noting that the lower Social Security COLA in 2025 comes as inflation cools.

You may have noticed that your grocery and utility bills aren’t climbing as quickly these days. So what you lose in a smaller Social Security increase in the new year, you gain in not having to spend as much money on everyday essentials. Overall, things should level out to a great extent.

2. Earnings test limits are increasing

Seniors on Social Security are allowed to earn money while collecting benefits. And once you arrive full retirement ageyou don’t have to worry about how much you earn. You could bring home $500,000 and it won’t result in any of your Social Security being withheld.

But if you choose to work while on Social Security before upon reaching full retirement age, you will need to be aware of the program’s earnings test limits. In 2025, you can earn up to $23,400 without negative consequences. But from there, $1 in Social Security will be withheld for every $2 you earn.

There is also a higher income test limit for people who will reach full retirement age at some point in 2025 but will start the year without having reached it yet. In this case, the earnings threshold to consider is $62,160. From there, $1 in Social Security will be withheld for every $3 earned.

It’s important to know what Social Security’s earnings test limits look like so you can plan accordingly. But also know that withheld benefits are not permanently lost. You do get your money back once you reach retirement age. So, if a lucrative job opportunity comes your way, don’t automatically turn it down for fear of permanently losing some of your Social Security income.

3. The salary cap is rising

Social Security relies on revenue from payroll taxes to stay afloat. Each year, there is a set salary cap that determines how much income is taxed to fund the program.

In 2025, the salary cap is $176,100, up from $168,600 in 2024. That means higher earners will lose more of their salary to Social Security taxes. However, paying more into Social Security could mean you end up with a higher monthly benefit down the line.

And while it can be argued that higher earners don’t need Social Security as much because they earn enough money to finance a retirement planit goes without saying that everyone with a six-figure salary is constantly contributing to an IRA or 401(k). Higher monthly retirement benefits could end up saving higher earners who live in high-cost areas and don’t manage to save as much.

You might assume that Social Security isn’t the kind of thing you need to keep reading about. But actually, the schedule changes quite a bit in 2025, and that could affect your finances one way or another. So it’s best to pursue Social Security regardless of age or stage of life.