Social Security Changes in 2025: What You Need to Know. Prepare for increased FICA taxes, changes affecting early retirees, a low cost-of-living adjustment (COLA), and a higher Medicare premium. Learn how to minimize the impact of these changes on your finances.
Social Security Changes in 2025: What You Need to Know
Increased FICA Taxes for Higher Earners
New year, new changes. While some Social Security changes in 2025 are welcome, others may not be so pleasant. One change that’s likely to hurt the worst is an increase in FICA taxes for higher earners.
The FICA tax rate remains unchanged at 15.3%, split equally between employees and employers. However, the amount of income subject to the Social Security portion of the FICA tax will increase next year. The maximum taxable earnings limit will rise from $168,600 to $176,100 in 2025.
Changes Affecting Early Retirees
Another change that may impact some individuals is an adjustment to the withholding threshold for Social Security benefits. Currently, Social Security withholds $1 in benefits for every $2 in earnings above $22,320 for those under their full retirement age (FRA). This limit will increase to $23,400 in 2025.
The COLA Conundrum
Ironically, the most painful Social Security change in 2025 is one intended to help people. All Social Security beneficiaries will receive a cost-of-living adjustment (COLA) of 2.5% beginning in January. While this may seem like good news, it’s actually a concern for many individuals.
The 2025 COLA will be the lowest increase given since 2020. However, there’s a well-known flaw with the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) used to calculate the COLA: it doesn’t accurately reflect the increased costs incurred by seniors. Retirees could especially feel the sting of the low COLA next year.
The Medicare Premium Hike
To make matters worse, retirees will also face a higher Medicare Part B premium in 2025. The standard premium will increase to $185, up 5.8% from this year’s standard premium. This hike alone will wipe out roughly 20% of the average Social Security COLA.
Minimizing the Pain
While there’s little that can be done to change these changes, there are some strategies to help minimize the pain:
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Track expenses and reduce them wherever possible.
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Consider taking on a part-time job or freelancing to supplement income.
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Prioritize health and wellness to prevent medical expenses.
By understanding these changes and taking steps to mitigate their impact, individuals can better navigate the complexities of Social Security in 2025.
