As the U.S. faces a growing number of retirees, with birth rates falling below replacement levels in recent years, Social Security is set for significant changes in 2025. Nearly 73 million Americans currently benefit from this vital social safety net program. These changes, driven by inflation and wage trends, will take place regardless of the actions of the incoming Trump administration. Here’s an overview of the key shifts affecting Social Security in 2025.
Cost-of-Living Adjustment (COLA)
The Cost-of-Living Adjustment (COLA) will adjust benefits to match inflation. Since COLA increases are tied to inflation rates, a decrease in inflation will lead to a smaller adjustment. In January 2025, Social Security recipients can expect a 2.5% increase in their benefits. This means about $48 more per month for the average filer and around $39 per month for those with disabilities. Over the past decade, COLA has averaged a 2.6% annual increase, but this year’s boost is lower than the 3.4% adjustment seen in 2024.
Medicare Part B Premium Increases
Social Security beneficiaries who are enrolled in Medicare Part B will see an increase in their monthly premiums starting in 2025. The Medicare Part B premium will rise by $10.30, from $174.70 to $185 per month. While the COLA increase may offset some of this rise, beneficiaries should remain aware of this change. Additionally, Medicare premiums for Part D are also rising, which may impact overall income.
Earnings Test Limit Adjustments
The earnings test applies to those who work while receiving Social Security benefits before reaching their full retirement age (FRA). In 2025, the earnings test limit will increase to $23,400, up from $22,320 in 2024. Beneficiaries who earn more than this amount will lose $1 in benefits for every $2 they earn above the threshold. This change allows workers to keep more of their income before facing benefit reductions.
Increase in the Taxable Earnings Limit
In 2025, the maximum amount of income subject to Social Security taxes will increase. The limit, which was $168,600 in 2024, will rise to $176,100 in 2025. Individuals earning up to the new limit will pay the 6.2% Social Security tax, which applies to both employees and employers.
What’s Next for Social Security?
Despite Trump’s campaign promises to avoid cuts to Social Security, experts continue to warn of the program’s need for reform. The program faces a projected $3.5 trillion shortfall over the next decade, according to the Tax Foundation. While Social Security will not disappear, experts suggest Congress must either reduce benefits or increase revenue to ensure its long-term sustainability.
