Social Security is set to undergo several changes in 2025 that will impact millions of Americans. The average payment will increase by 2.5% due to a Cost of Living Adjustment (COLA). While this is a modest boost, it falls short of the substantial adjustments seen in recent years.
High earners will face a larger tax burden as the maximum taxable earnings for Social Security rise from $168,600 to $176,100. This means a greater portion of their income will be subject to the 12.4% Social Security payroll tax, which is split between employees and employers. The Social Security Administration is also streamlining its application process.
The new digital application has been reduced from 54 to just 12 questions. However, this simplified form is only available to those under 65 who have never applied for benefits before. Leadership changes are on the horizon for the Social Security Administration.
Social Security changes ahead
Commissioner Martin O’Malley stepped down in November 2024 to pursue a campaign for the Democratic National Convention. President-elect Donald Trump has nominated Frank Bisignano as his replacement, but the appointment must pass Senate confirmation hearings.
Trump’s campaign pledged to cut federal spending on government programs. If Bisignano is confirmed and follows this directive, it could impact Social Security’s viability. Proposed policies to eliminate taxes on benefits, implement tariffs, and end taxation on tips and overtime may widen the program’s deficits.
Retirees who claim benefits early and continue working may face reductions based on the Retirement Earnings Test. In 2025, benefits will be reduced by $1 for every $2 earned over the limit for those below their Full Retirement Age (FRA). For those reaching their FRA in 2025, benefits will be reduced by $1 for every $3 earned over the threshold.
As Americans navigate these changes, the incoming administration’s approach to federal funding and tax cuts will play a crucial role in shaping Social Security’s future. Retirees must explore strategies to maximize their savings and improve financial security in the face of these evolving circumstances.
