Social Security Gets a Shake-Up in 2025, and 3 Changes May Surprise Retirees

Certain aspects of Social Security are revised each year to keep benefit payments aligned with inflation and wages. While those changes are most consequential for retirees and other beneficiaries, they will also impact some workers not currently receiving Social Security.

However, a recent survey from Nationwide Retirement Institute shows that a large percentage of Americans lack a basic understanding of the program. Knowledge gaps can lead to costly financial planning mistakes, so everyone should make an effort to stay informed.

Here are three changes coming to Social Security in 2205 that may surprise retirees.

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1. Social Security benefits will get a cost-of-living adjustment to account for inflation in 2025

Nationwide Retirement Institute reports that 66% of surveyed adults incorrectly agreed with this statement: "Social Security is not protected against inflation." Additionally, 61% of surveyed adults incorrectly agreed with this statement: "Your monthly Social Security benefits amount will be reduced if deflation occurs."

Neither statement is true. Social Security beneficiaries receive annual cost-of-living adjustments (COLAs) to protect the buying power of benefits from inflation. COLAs are based on how much the Consumer Price Index (CPI) increases in the third quarter of the preceding year (i.e., July through September), but no COLA is applied if the percent increase is negative. In other words, benefits are never revised downward if deflation occurs.

In 2025, Social Security recipients will receive a 2.5% COLA. That is the smallest benefit increase since 2021 because inflation has trended downward. The chart shows how much additional monthly income (on average) different types of beneficiaries can expect next year.

Data source: Social Security Administration. Pre-COLA amounts reflect the average benefit paid out in November.

2. Some workers will pay more Social Security taxes in 2025

Nationwide Retirement Institute reports that 74% of survey adults incorrectly agreed with this statement: "Workers pay Social Security taxes on all of their income." Additionally, 68% of adults incorrectly disagreed with this statement: "Somebody who makes $200,000 pays as much in Social Security taxes as millionaires."

The first statement is false, but the second statement is true. Social Security is primarily funded by payroll taxes, but the amount of income subject to taxation is limited by law. The maximum taxable earnings limit is $168,600 in 2024, but that figure will rise to $176,100 in 2025 to account for increases in the average wage.

That means anyone who currently makes more than $168,600 annually will not pay Social Security taxes on all their income. Instead, any income above the taxable maximum is excluded. Consequently, workers who make $200,000 per year pay exactly the same amount in Social Security taxes as workers that makes $2 million.

In 2025, the maximum taxable earnings limit will increase to $176,100. Most workers pay 6.2% of their income, which means the maximum tax burden is $10,918.20. That exceeds the maximum tax burden of $10,453.20 in 2024. So, workers with income that exceeded the taxable maximum in both years will owe an additional $465 in Social Security taxes next year.

3. The maximum Social Security benefit for new retirees will increase in 2025

Nationwide Retirement Institute reports that 40% of surveyed adults incorrectly disagreed with this statement: "There is a cap to how much Social Security benefits you can get." Additionally, less than half of adults agreed with this statement: "I know exactly how to maximize my Social Security benefits."

Social Security payments are capped due to the taxable earnings limit discussed in the last section. Income above the threshold is not considered in the benefits formula. In other words, because workers contribute a limited amount of income to the program, the amount of benefits they can receive is also limited. However, the maximum Social Security payout does increase each year alongside the taxable earnings limit.

The chart shows the maximum monthly retired-worker benefit at different claim ages in 2025.

Data source: Social Security Administration.

Importantly, very few workers make more than the maximum taxable earnings limit, so very few retirees get the maximum Social Security benefit. To qualify, your income would need to exceed the taxable maximum for 35 years. However, the chart still illustrates an important point: Delaying Social Security until age 70 can substantially increase the payout versus claiming benefits at age 62.