Every year, Social Security undergoes adjustments to ensure benefit payments keep pace with inflation and wage changes. While these adjustments primarily affect retirees and beneficiaries, they also have implications for some workers not currently receiving benefits.

Interestingly, a recent survey conducted by Nationwide Retirement Institute highlights that many Americans possess a limited understanding of the Social Security program. This lack of knowledge can result in expensive financial planning errors, so it’s crucial for individuals to stay informed.

Here are three surprising updates about Social Security scheduled for 2025 that may catch retirees off guard.

1. Social Security Benefits Will Receive a Cost-of-Living Adjustment in 2025

According to the Nationwide Retirement Institute, 66% of surveyed adults mistakenly believe that “Social Security does not guard against inflation.” Furthermore, 61% incorrectly thought, “Your monthly Social Security benefits will drop if deflation occurs.”

Both statements are incorrect. Social Security recipients benefit from annual cost-of-living adjustments (COLAs) that aim to maintain their purchasing power despite inflation. COLAs depend on the increase of the Consumer Price Index (CPI) during the third quarter of the previous year (from July to September). However, if there is a negative percentage rise, no COLA is applied. This means that if deflation occurs, benefits are not decreased.

In 2025, Social Security recipients will see a COLA of 2.5%, marking the smallest increase since 2021 as inflation has decreased. The chart outlines the additional monthly income different categories of beneficiaries can anticipate next year.

Source: Social Security Administration. Pre-COLA amounts reflect the average benefits paid out in November.

2. Increased Social Security Taxes for Some Workers in 2025

The Nationwide Retirement Institute found that 74% of adults surveyed wrongly believed: “Workers pay Social Security taxes on their entire income.” Additionally, 68% incorrectly disagreed with the statement: “An individual earning $200,000 pays the same amount in Social Security taxes as millionaires.”

The first statement is false; the second is accurate. Social Security funding mainly comes from payroll taxes, but there is a cap on earnings subject to this tax. In 2024, the maximum taxable earnings limit is $168,600, which will increase to $176,100 in 2025 to reflect wage growth.

This means anyone earning over $168,600 will not be taxed on all their income for Social Security. As such, those earning $200,000 pay the same amount in Social Security taxes as those earning $2 million.

In 2025, the maximum taxable earnings limit is set to rise to $176,100. Generally, workers contribute 6.2% of their income, resulting in a maximum tax amount of $10,918.20, which is higher than the 2024 cap of $10,453.20. Workers exceeding the taxable maximum in both years will face an additional $465 in Social Security taxes next year.

3. New Retirees Will See an Increase in the Maximum Social Security Benefit in 2025

In the same survey, 40% of adults incorrectly disagreed with the assertion: “There is a limit to how much Social Security benefits one can receive.” Moreover, less than half of the respondents felt they understood how to maximize their Social Security benefits.

There is indeed a cap on Social Security benefits tied to the taxable earnings limit mentioned earlier. Income above this limit is excluded from the benefits calculation. This means that the amount of benefits one can receive is also capped. However, the maximum payout does rise each year in line with salary caps.

The chart details the maximum monthly benefit for new retirees at varied ages of claim in 2025.

Source: Social Security Administration.

Crucially, very few workers earn above the taxable maximum, resulting in a limited number of retirees receiving the maximum Social Security benefit. To qualify for maximum benefits, an individual’s income would need to exceed the taxable maximum for 35 years. Nevertheless, the chart shows an essential takeaway: waiting until age 70 to claim Social Security can lead to significantly higher payouts compared to starting at age 62.

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