As 2025 approaches, recipients of government programs like Social Security should be aware of upcoming changes to ensure a favorable experience. The majority of the changes are modest modifications due to inflation fluctuations, but other changes might have a greater impact, and it is critical to remain aware.
1.The 2025 Social Security COLA
Every year, Social Security beneficiaries receive a cost-of-living adjustment (COLA) to ensure their benefits keep up with inflation. After retirement, beneficiaries cannot increase their benefits without continuing to work, making them considered fixed income. The COLA increase is applied in January for the next year’s benefit. In 2025, the increase will be 2.5%.
In 2024, the average retired worker received $1,925.46 in monthly Social Security benefits. If we apply the increase to this benefit, the average retired worker will earn approximately $1,974 beginning in the new year.
2.The Social Security benefit formula
The Social Security benefit formula will remain unchanged in 2025, but the amounts used to compute benefits will be adjusted to reflect inflation.
To compute benefits, a worker’s 35 highest-earning years are indexed for inflation and averaged, and the monthly average earnings are used to a formula using three multipliers: 90%, 32%, and 15%, which remain constant each year.
The amount that varies is the amount of money they apply to, also known as bend points. In 2025, the formula used to calculate average indexed monthly earnings (AIME) is:
90% of the first $1,226.
32% of the amount between $1,226 and $7,391.
15% of any AIME greater than $7,391.
3.Maximum possible Social Security benefit
As previously stated, Social Security benefits grow year due to the COLA. However, all beneficiaries are subject to a maximum payment amount based on their retirement age. The Social Security Administration states that if you retire at full retirement age in 2024, your maximum benefit will be $3,822. If you retire at 62 in 2024, your maximum benefit will be $2,710. If you retire at age 70 in 2024, your maximum benefit is $4,873.
In 2025, the maximum monthly payout for 62-year-olds will be $2,831, for 70-year-olds it will be $5,108, and for those retiring at their full Social Security retirement age it will be $4,018.
4.Contribution and benefit base
The Social Security payment and benefit base will increase to $176,100 in 2025, up from $168,600 in 2024. Known as the “Social Security taxable maximum earnings,” this limitation restricts the amount of income that is subject to the 6.2% payroll tax for both employers and employees. It affects benefit computations by representing the maximum income considered while determining the AIME, a crucial component of the Social Security formula.
5.How much you can earn while collecting Social Security
In 2025, the Social Security earnings test restrictions will increase. Individuals who have not yet attained full retirement age (FRA) during the year are exempt from monthly earnings up to $1,950. Benefits will be withheld for every $2 earned beyond this threshold.
For people reaching FRA in 2025, the exempt monthly earnings ceiling is $5,180, with $1 withheld for every $3 earned beyond it. Benefits withheld owing to the earnings test are not lost and can be used to boost your monthly benefit once you meet FRA.
