5 Major Social Security Updates for 2025 - What You Need to Know

Summary

The video discusses five key changes to Social Security that will take effect in 2025, which could impact recipients significantly. These include a 2.5% cost-of-living adjustment (COLA), an increase in the wage cap to $176,000, updates to Social Security payment formulas, new earnings limits before benefits are affected, and the need for 40 work credits to qualify for Social Security. The host emphasizes the importance of understanding these changes, especially as the Social Security trust is expected to run out by 2034-2036, and encourages viewers to stay informed for future updates.

Takeaways

• 📈 The cost of living adjustment (COLA) for Social Security in 2025 will increase by 2.5%, meaning beneficiaries will see an increase in their payments.
• 💰 The wage cap for Social Security contributions will increase from $168,000 in 2024 to $176,000 in 2025, impacting high earners.
• 📊 The calculation of Social Security benefits is based on your highest 35 years of indexed earnings, with percentages applied at different income levels to determine your monthly benefit.
• ⚖️ Lower-income earners receive a higher percentage of Social Security benefits relative to their contributions, which is seen as fairer since they are more financially vulnerable.
• 📉 The earnings limit for those collecting Social Security before full retirement age will increase to $23,400 in 2025, with penalties for exceeding this limit.
• 🎂 For individuals reaching full retirement age in 2025, the earnings limit increases to $62,100, allowing more income before penalties apply.
• 📅 In your first year of collecting Social Security, earnings before you start receiving benefits do not count toward the earnings limit.
• 🗓️ To qualify for Social Security, you need 40 work credits, and in 2025, one credit will require earning at least $1,810 in a quarter.
• 🚨 It’s crucial to ensure you have enough work credits, especially for those who have taken extended time off from work, like stay-at-home parents.
• 🔮 The Social Security trust fund is projected to run out of funds by 2034-2036, and future reforms are likely to be implemented by the next president to address this issue.

Q & A

What is the cost of living adjustment (COLA) increase for Social Security in 2025?

The cost of living adjustment (COLA) for Social Security in 2025 will increase by 2.5%. For example, if you received $20,000 in 2024, your payments will increase to $20,500 in 2025.

Why is a smaller COLA increase significant despite being lower than previous years?

A smaller COLA increase is significant because a large COLA indicates high inflation, which can affect other sources of income like savings or pensions. A lower increase suggests less inflation, which can be better for overall financial stability.

How does the Consumer Price Index (CPI) impact the COLA, and why is it imperfect?

The CPI drives the COLA, but it's imperfect because it doesn't capture all cost changes accurately. For example, it reflects replacement costs, so switching from expensive to cheaper brands lowers the CPI even though your cost of living hasn’t decreased in real terms.

What is the Social Security wage cap for 2025?

The wage cap for Social Security in 2025 is $176,000. Earnings above this amount are not subject to Social Security tax.

How does Social Security tax apply to high earners?

High earners pay 6.2% Social Security tax on income up to the wage cap ($176,000 in 2025). Any income above this is not taxed for Social Security.

What are bpoints, and how do they affect Social Security payments?

Bpoints refer to the formula that calculates Social Security payments. The SSA averages your best 35 years of earnings, indexed to today’s dollars, and applies a formula based on different percentages to determine your Social Security payment.

What is the earnings limit for people receiving Social Security in 2025?

In 2025, if you are not at full retirement age, you can earn up to $23,400 without losing Social Security benefits. For every $2 you earn above that, $1 must be returned to the SSA.

How do work credits affect Social Security eligibility?

To qualify for Social Security, you need 40 work credits (about 10 years of work). In 2025, you need to earn at least $1,810 per quarter to receive one credit, and you can earn up to four credits per year.

What happens if you reach full retirement age in terms of earnings and Social Security payments?

Once you reach full retirement age, you can earn any amount of money without having to return any of your Social Security payments. Any benefits you had to return before reaching full retirement age are repaid to you in the form of higher payments.

Why is it important to keep track of your work credits for Social Security?

It’s important to track your work credits because if you miss the 40 credit minimum, you won’t qualify for Social Security. Some people, especially those who took extended time off work, may fall short and miss out on benefits.