Social Security Announces Two Major Changes Following the COLA Adjustment – What Retirees Need to Know

This week marks a pivotal moment for retirees as the Social Security Administration (SSA) prepares to announce the cost-of-living adjustment (COLA) for 2025. While many eagerly await this news, there’s a brief delay due to one important reason: the SSA requires September’s inflation data to finalize the adjustment. With this data becoming available by October 10, retirees will soon learn the increase they can expect in their Social Security benefits.

But the COLA isn’t the only update on October 10. The SSA will also release other key changes for 2025, impacting not only retirees but also workers contributing to Social Security. Among these updates are two critical areas to watch: the earnings-test limits and the wage cap for Social Security taxes.

Earnings-Test

One of Social Security’s benefits is the ability for recipients to continue working while receiving benefits. However, if you are under full retirement age, there’s a limit on how much you can earn before your Social Security benefits are reduced. Exceeding this limit can result in a portion of your benefits being temporarily withheld.

For 2024, this earnings-test limit is set at $22,320. If your earnings surpass this threshold before reaching full retirement age, some of your benefits may be withheld. For those reaching full retirement age during 2024, the earnings limit is more generous, at $59,520. This means you can earn up to this amount without any reduction in benefits.

Looking ahead, it’s expected that the earnings-test limits will increase for 2025, giving retirees more flexibility to earn additional income without facing penalties. It’s crucial to know that any benefits withheld due to exceeding the earnings limit aren’t permanently lost. The SSA will return those amounts once you hit full retirement age.

While this helps in the long run, it can create short-term financial challenges for retirees who depend on those benefits.

Wage Cap

The wage cap is another important update that workers should keep an eye on. Social Security taxes are not applied to all of a worker’s income. Instead, they’re limited by a wage cap, which sets the maximum amount of earnings subject to Social Security taxes.

In 2024, the wage cap is set at $168,600. This means any income above this threshold is not taxed for Social Security purposes. In 2025, the cap is expected to rise, reflecting inflation and overall wage growth.

Although this may seem like a technical detail only relevant to workers, the wage cap plays a crucial role in the long-term stability of the Social Security system. The program faces a potential revenue shortfall in the next decade, which could lead to benefit cuts unless additional revenue sources are secured. Raising the wage cap ensures more earnings are taxed, contributing more funds to the system.

This helps maintain the program’s financial health, supporting current retirees and those who will claim benefits in the future.

October 10

While the focus is on the upcoming COLA announcement, the SSA’s updates to earnings-test limits and the wage cap are equally significant. The earnings-test limits will determine how much retirees can earn without penalties, and the wage cap changes directly affect how much revenue flows into the Social Security system.

For retirees, it’s important to note that even if some benefits are withheld temporarily due to exceeding earnings limits, those funds will be returned once full retirement age is reached. For workers, understanding the wage cap increase is essential, as it impacts how much of your income is taxed for Social Security.

Keeping track of these updates is crucial for anyone planning their retirement or already receiving benefits. It’s a good idea to check the SSA’s website on October 10 to see how these changes will specifically affect you.

Ultimately, whether you’re already retired or still working, staying informed about Social Security updates is a key

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