The new year brings changes, and Social Security is one of the programs most affected by the yearly adjustments that the Social Security Administration (SSA), the independent government department in charge of managing benefits, decides to make.
Given that almost 70 million Americans get some form of benefit, these changes touch a sizable section of the population, and staying up to date on them is critical to avoiding any unpleasant shocks in the new year.
COLA increase on Social Security benefits
The first and most crucial change that any beneficiary must consider is the cost-of-living adjustment (COLA), which will apply to all Social Security income. This increase is intended to ensure that beneficiaries do not lose buying power when inflation rises and can cover their expenses in a meaningful way. According to the SSA, all benefits will increase by 2.5 percent on January 1st.
There is one major exception to this: the Supplemental Security Income (SSI) payment, which will get an increase but will be applied to the final payment in December 2024. This is because the first payment for SSI in January falls on a national holiday, and in such circumstances, the payment is dispersed on the prior day when banks are open, making the adjustment effective on December 31, 2024.
The hike will apply to the SSA’s five benefits: survivors, family, retirement, disability, and SSI. This is a positive thing, especially for individuals who are retired or disabled and rely largely on benefits as their primary source of income, because it allows them to meet more of their daily needs without having to tap into their already depleted savings.
Other changes to Social Security
A development that has not yet been confirmed but is expected to occur by 2025 is the continuance of efforts to extend Americans’ working lives. Over the last few years, the full retirement age has risen from 65 years old (the age at which Medicare is still available) to 67 years old for people born after 1960. Now, lawmakers are debating whether to extend it to 68 or even 70 years, depending on the beneficiary’s birth year.
The shift would not occur quickly and would be gradual once more, but it is one of the controversial policies that is almost certain to be passed sooner rather than later.
This is due to two factors: life expectancy is much longer today than it was when the full retirement age was enacted, and the Social Security Trust Funds are running out of money and cannot afford to provide full benefits to all program recipients. Raising the retirement age would not help now, but it would help to strengthen the program in the future.
Another contentious item that will undoubtedly be adopted in 2025 is a hike in the maximum taxed earnings. Not all income is taxed for Social Security, and the cap rises year with the COLA.
In 2024, the maximum taxable earnings cap was $160,200; in 2025, it will climb to $176,100. The tax hike will be worthwhile for individuals on track to get the maximum retirement benefit, which will climb from $4,873 to $5,108.
Medicare updates
Medicare Part B premiums, which cover certain doctors’ services, outpatient care, medical supplies, and preventive services, will rise from $174.70 per month in 2024 to $185 per month in 2025, lowering the COLA increase even further for beneficiaries.