There will inevitably be change, especially with regard to Social Security. To guarantee that beneficiaries receive the best care possible and to keep the system up to date with societal developments, the program is updated annually. Here are some things to consider if you want to retire in 2025 since it’s important for new retirees to be aware of these trends.

How Your Social Security Benefits Are Determined

Most people know this, but just in case you don’t, your records from your 35 highest earning years are used to compute your Social Security benefits. Payroll taxes are paid to the Social Security Administration (SSA) while you work. The amount you paid in taxes, which is equal to the amount you made, will be used to calculate your benefit.

For this reason, it is essential that you report any changes in your employment or income to the Social Security Administration. Make sure the information the SSA has about you is correct by checking your Social Security account, if you have one, or creating one if you don’t. It’s faster to update a record as it happens rather than waiting years.

Full Retirement Age

The age at which you are eligible to receive your full monthly benefit based on your career earnings record is known as full retirement age (FRA), according to the Social Security Administration (SSA). This age varies according to your birth year and has changed over time, rising from 65 to the current 67.

Nevertheless, since you can receive the most benefit at age 70, waiting until then to start receiving benefits would probably benefit you.

Cost-of-Living Adjustment

Social Security recipients receive annual cost-of-living adjustments (COLAs) to account for inflation even though their income is classified as fixed income. The typical retirement payment will increase by $48 per month in 2025 when the COLA is 2.5%.

A method that incorporates third-quarter inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to calculate the COLA. Although it hasn’t been approved yet, there have been recommendations to change the CPI used for the CPI-E, which skews the data for people over 62 by assigning more weight to sectors like healthcare.

Income Taxes on Benefits

According to the SSA, around 40% of beneficiaries are still subject to federal taxes even though the majority of states do not tax Social Security income. This is due to the fact that many people have other sources of income, such as retirement savings or passive income, which are taxable under federal law, even though Social Security income is not.

If a single person’s provisional income is less than $25,000 and they have not reached FRA, they are exempt from paying Social Security taxes; married couples filing jointly must meet a higher threshold of $32,000.

Up to 50% of your Social Security benefits may be subject to taxation if your provisional income falls between $25,000 and $34,000 for single filers or between $32,000 and $44,000 for joint filers. Up to 85% of benefits may be subject to taxation for incomes over specific thresholds. However, Social Security benefits will not be subject to taxes for those who start receiving them once they reach full retirement age in 2025.

Earnings Test

Contrary to popular belief, you can receive benefits while working. However, an earnings test will reduce your benefits before you reach FRA, thus your benefits will decline.

With only earnings up to the month prior to reaching FRA, the SSA will reduce your benefits by $1 for every $2 earned over the annual cap if you stay below FRA for the entire year. For recipients who have not yet reached FRA, the earnings cap is $22,320 in 2024 and will rise to $23,400 in 2025.

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