As the U.S. faces a growing number of retirees, with birth rates falling below replacement levels in recent years, Social Security is poised for some significant changes in 2025. Nearly 73 million Americans currently benefit from this vast 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
The Cost-of-Living Adjustment, which adjusts benefits to match inflation, is one of the most notable changes. Since the Cost-of-Living Adjustment 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, which translates to about $48 more per month for the average filer and around $39 per month for those with disabilities. Over the past decade, the Cost-of-Living Adjustment 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 experience 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 Cost-of-Living Adjustment may offset some of this increase, it’s important for beneficiaries to be aware of this change. In addition to the Part B premium, Medicare premiums for Part D are also rising, which can further impact overall income.
Earnings Test Limit Adjustments
The earnings test affects those who are working while receiving Social Security benefits before reaching their full retirement age (FRA). In 2025, the earnings test limit will rise to $23,400, up from $22,320 in 2024. If a beneficiary earns more than this amount, $1 will be deducted from their benefits for every $2 they earn above this threshold. This change allows workers to keep more of their income before their benefits are reduced.
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. This means that individuals earning up to the new limit will be required to pay the 6.2% Social Security tax, which will also apply to both employees and employers.
What’s Next for Social Security?
Despite promises from Trump’s campaign to avoid cuts to Social Security, experts continue to warn of the 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 that Congress will need to find ways to either reduce benefits or increase revenue to ensure its sustainability in the long run.
