All eyes are on the presidential candidates ahead of the November election and how they might shape Social Security’s future if they win. However, some changes to Social Security will occur in 2025 regardless of who wins the White House or Congress.
The following are five parts of the program that will be impacted whether the president is a Republican or a Democrat.
Impact on Current Retirees
Current retirees will be impacted by the first major change. Seniors who are receiving Social Security will see their installments grow larger next year.
This is occurring because the benefits program has an automatic cost-of-living adjustment built into it in order to offset the erosion of buying power.
Projected Increase
As costs go up, benefits do, as well. The size of the COLA will be determined by a formula based on changes to a consumer price index.
Experts are right now projecting a 2.6% increase, despite the fact that seniors won’t know for certain until October as the formula relies on data from the third quarter.
Work Credit Quotas
Social Security is a program that relies on “earned benefits”. You must procure 40 work credits to become qualified for benefits and can acquire up to four credits each year.
You earn work credits by acquiring and paying taxes on your income. In 2024, you need to earn $1,730 to be eligible for one work credit. Thus, in the event that you make $6,920 this year, you’ll maximize the four credits you’re qualified for.
Retirement Benefits
In order to take into account rising wages, the amount you must earn in order to qualify for a work credit goes up each year. You could, for instance, get a work credit in 2023 for just $1,640.
It’s important to pay attention to this change coming next year for those who work but don’t make much. When you get older, you don’t want to run out of work credits to get retirement benefits.
Income Brackets
You can work as much as you want without affecting your benefits if you have reached full retirement age. That is not changing.
However, this is not the case if you are under the full retirement age. When you hit a specific income bracket, you begin to relinquish a portion of your Social Security payments.
Increase Due to Inflation
Eventually, this forfeited money returns to you when your benefits are recalculated at full retirement age, but meanwhile, you could find your Social Security checks vanish if your income is too high.
Because it is indexed to inflation, the amount you can earn before this happens changes in 2025 and will probably go up. This is good news, as it implies individuals will be able to get a higher paycheck and still receive benefits.
People Near Retirement
In 2024, the maximum salary is $22,320. The 2025 limit is yet to be announced. Nearly retired people will be affected by one more significant change in 2025, which is baked in and happening automatically.
They will be able to claim full benefits at a later age. While the people who turn 66 in 2024 can guarantee their full, unreduced benefits at 66 and 8 months, anybody who isn’t turning 66 until 2025 must hold back from beginning their installments until 66 and 10 months.
Early Filing Penalty
Those who claim benefits before full retirement age will face monthly early filing penalties. This change was enacted in 1983 when legislators passed a regulation requiring full retirement age to gradually move later to assist with working on the struggling finances of Social Security.
High-earning individuals may be unhappy about this change. In 2025, the maximum income that can be taxed by Social Security will be higher.
Wage Cap Increases
The amount of income that is taken into account when calculating benefits and subject to taxation is capped by Social Security.
The cap is $168,600 in 2024 but it is indexed to inflation, so it will increase next year. In the event that you make more than $168,600 in 2025, you can expect a higher Social Security tax bill next year after the limit has been increased.
Managing Inflation
These changes happen on the grounds that Social Security has arrangements to manage inflation and due to regulations that have been in effect for many years.
Regardless of who wins the election, seniors and those close to retirement age should adapt to the changes, so it’s worth it to start planning now.
Taxes on Social Security
Your age or location will still not have an impact on whether you owe federal tax on Social Security.
This is dependent on your earnings regardless of the age at which you claim and is set by federal law.
The IRS sets a “provisional income” limit which determines the cutoff for when Social Security benefits are taxed.
