2 Big Social Security Changes Are Coming in 2025. Here's What to Expect.

Social Security has been around for nearly nine decades, but the program has had a major overhaul since then. And now its gearing up for some big changes in 2025 that could affect millions of people.

Whether you're already collecting benefits or planning for retirement, it's important to keep tabs on these changes so you won't be caught off guard. We've dug up two key updates coming to Social Security next year and what they mean for you.

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1. Social Security benefits are getting a modest bump

Let's start with a bit of good news: Social Security benefits will increase by 2.5% in 2025, thanks to the annual cost-of-living adjustment (COLA). The average monthly Social Security benefit is set to rise from $1,927 to $1,976 once 2025's COLA kicks in. For the average retiree, this means about $50 more per month in benefits starting in January. But if you're enrolled in Medicare Part B, those premiums might take a bite out of your increase.

All told, you're probably not jumping for joy over this news. In fact, a recent Motley Fool survey of 2,000 retirees found that 54% of respondents believe next year's COLA is insufficient. And that's not surprising. The same survey also revealed that 62% of retirees have cut back on nonessential items due to inflation.

So is the 2025 COLA good or bad? Let's rewind to past COLAs for a bit of context. Recent years have delivered some truly super-sized adjustments: 3.2% in 2024, 8.7% in 2023, and 5.9% in 2022. Compared to those hefty increases, the 2.5% COLA for 2025 might feel like a letdown.

But here's the deal: The 2025 COLA is tied directly to inflation, and a 2.5% Social Security bump signals that inflation is cooling. Plus, this adjustment is far from the worst-case scenario. Remember, there have been years when Social Security recipients got no raise at all -- such as in 2010, 2011, and 2016. And in 2020 and 2021, COLAs were just 1.6% and 1.3%, respectively.

2. There's more room to earn while collecting Social Security

Working while collecting Social Security benefits is more common than you might think. With the average Social Security check coming in at $1,920.48, it's often not enough to cover the bills for many retirees. No surprise then that the same Motley Fool survey mentioned earlier found that 50% of retirees are thinking about heading back to work.

If you're planning to stay in or rejoin the workforce while receiving Social Security benefits, here's some good news: Social Security's earnings limits are increasing in 2025. Here's what you need to know about the earnings-test limit and how it could impact your benefits.

• Earnings-test limit for early filers: If you claim Social Security benefits before reaching full retirement age (FRA) -- age 67 for those born in 1960 or later -- you'll see the earnings-test limit increase to $23,400 in 2025. That's up from $22,320 in 2024. This means you can earn an extra $1,080 before the Social Security Administration starts withholding $1 from your benefits for every $2 you earn above the limit.
• Earnings-test limit for those reaching FRA in 2025: If you'll hit FRA in 2025, the earnings-test limit is much higher. It jumps to $62,160. That's up from $59,520 in 2024. Beyond this point, $1 is withheld for every $3 you earn over the limit.

The silver lining? Once you reach FRA, the Social Security earnings test no longer applies. Even better, any benefits withheld due to the earnings test are not lost. You'll end up receiving higher monthly payments down the road because those benefits are returned to you.

If you're planning to collect Social Security checks next year, keep tabs on the changes that are set to take place. A little planning today can go a long way toward making the most of your benefits and keeping more money in your pocket.

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