As the November 2024 general election approaches, significant changes to Social Security are on the horizon for 2025. Regardless of the election outcome, both retirees and working individuals will need to prepare for these adjustments. Factors such as inflation will play a crucial role in determining benefits and taxes. Here are five key changes coming to Social Security that you need to be aware of.

1. Cost-of-Living Adjustment (COLA)

While the final COLA for 2025 will be confirmed in October, experts are already making predictions based on current trends. Alicia Munnell from Boston College’s Center for Retirement Research suggests a 2025 adjustment between 2.6 percent and 2.9 percent due to decreasing inflation. Sri Reddy of Principal Financial Group also forecasts a COLA between 2.75 and 3.25 percent. For retirees, this means an average Social Security payment increase from $1,918.28 in June 2024 to approximately $1,968.15 in 2025, an increase of $49.87.

2. Full Retirement Age Adjustment

The age for claiming full Social Security benefits is gradually increasing. According to the Motley Fool, individuals turning 66 in 2024 can claim full benefits at 66 years and 8 months. However, those turning 66 in 2025 will need to wait until 66 years and 10 months. Claiming benefits before reaching this age will result in early filing penalties.

3. Credit Requirements

To qualify for Social Security benefits, you need to earn a minimum of 40 credits over your working life, with a maximum of four credits per year. For 2024, one credit is earned for every $1,730 in covered earnings, requiring $6,920 to earn the maximum four credits. The exact amount needed for 2025 credits will be announced later, but it is expected to increase.

4. Increased Tax Cap

The income cap for Social Security taxes and credits will rise in 2025. The 2024 cap is set at $168,600, but this will increase to an estimated $174,900 in 2025. This adjustment is based on projections from the Social Security Trust Fund’s Board of Trustees, with the official figure to be announced in October 2024.

5. Impact on Medicare and Other Benefits

The number of credits earned not only affects Social Security but also Medicare, survivor benefits, and disability benefits. As the credit requirements change, so too will the eligibility and amount of these associated benefits. Workers need to stay informed about these changes to maximize their benefits.

These significant changes are coming to Social Security in 2025, impacting everything from COLA adjustments to retirement age and tax caps. Staying informed and planning ahead will be crucial for retirees and working individuals alike to navigate these changes effectively.

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