Social Security announces 2 more new changes after the COLA

This week marks a significant moment for retirees as the Social Security Administration (SSA) prepares to unveil the cost-of-living adjustment (COLA) for 2025. After much anticipation, the SSA is ready to make the announcement, but the delay has a clear reason: the administration needs the final inflation data from September to calculate the adjustment. Since this data will not be available until October 10, retirees will have to wait just a little longer before finding out what their increase will be for the coming year.

October 10 is not just about the COLA, however. The SSA will also release other important updates for 2025, including changes that affect working retirees and workers paying into Social Security. Two specific areas are particularly important for retirees and those nearing retirement to watch for: the earnings-test limits and the wage cap for Social Security taxes.

One of the beneficial aspects of Social Security is that it allows beneficiaries to work and earn income while receiving benefits. However, before you reach full retirement age, there are limits on how much you can earn before it starts affecting your Social Security payments. If you have not yet reached full retirement age but are still collecting benefits, you may have some of your benefits withheld if your earnings exceed a certain threshold.

For 2024, this earnings-test limit is set at $22,320. This means that if you earn above this amount before reaching full retirement age, some of your benefits may be withheld. For individuals who will reach full retirement age during 2024, the earnings-test limit is higher, at $59,520. It is expected that in 2025, these limits will increase, allowing retirees to earn a bit more without facing a reduction in benefits.

It’s important to note, however, that any benefits withheld due to exceeding the earnings limit are not lost permanently. The SSA returns these amounts once you reach full retirement age. But while this may be good news for your long-term financial outlook, it might not help if you are relying on those benefits in the short term.

The wage cap is another key factor that will be updated in 2025, and it impacts both workers and the broader Social Security system. Social Security taxes are not applied to all of a worker’s income. Instead, there is a wage cap that limits how much of a person’s earnings are subject to Social Security taxes. For 2024, the wage cap is set at $168,600, meaning that any earnings above this threshold are not taxed for Social Security purposes.

This wage cap is likely to rise in 2025, reflecting inflation and wage growth trends. While this might seem like a detail that only matters to workers and not retirees, it actually plays a critical role in the long-term stability of the Social Security system. The program is facing a potential revenue shortfall in the coming decade, which could lead to benefit cuts if additional revenue sources are not secured. Increasing the wage cap means more income is taxed, which helps funnel more money into the system. This is one piece of the puzzle in ensuring the future sustainability of Social Security and potentially averting cuts to benefits down the line.

While the spotlight is on the COLA announcement, it is worth keeping an eye on these other updates from the SSA. The earnings-test limits and wage cap are both significant factors that can influence how much retirees can earn without penalty and how much money flows into the Social Security system overall.

Given the importance of these updates, it is a good idea to check the SSA’s website on October 10 to see how these changes will affect you. Whether you are a current retiree or someone still in the workforce, staying informed about Social Security changes is crucial to ensuring your financial well-being in the years ahead.