Social Security Announces Two New Changes After the COLA – Major Shifts Ahead for Retirees

This week holds big news for retirees as the Social Security Administration (SSA) prepares to unveil the cost-of-living adjustment (COLA) for 2025. The delay in the announcement is due to one important factor: the SSA needs the final inflation data from September before it can calculate the COLA. This data will be available on October 10, meaning retirees have a little longer to wait. But there’s more to watch for besides the COLA. The SSA is also updating other key aspects, like earnings-test limits and the wage cap for Social Security taxes.

Both of these changes will affect retirees, those nearing retirement, and even workers still contributing to Social Security. Let’s take a closer look at what these updates mean for your financial future.

Earnings-Test

One of the benefits of Social Security is that you can still work and earn income while receiving benefits. However, if you haven’t reached full retirement age, there’s a limit on how much you can earn before it starts to impact your Social Security payments. This is known as the earnings-test limit.

For 2024, the earnings-test limit is set at $22,320. If you earn more than this amount before reaching full retirement age, some of your benefits will be withheld. If you’ll be reaching full retirement age during 2024, the limit rises to $59,520. The good news for retirees is that these limits are expected to increase in 2025, allowing retirees to earn more without seeing their Social Security benefits reduced.

A common misconception is that if some benefits are withheld, they’re gone for good. That’s not true. The SSA will return those withheld benefits once you reach full retirement age. So, while your short-term income may take a hit if you go over the limit, you’ll eventually recover the lost benefits later down the road.

Wage Cap

The Social Security wage cap is another major update to look out for in 2025. Social Security taxes aren’t applied to all your income—only up to a certain limit, known as the wage cap. For 2024, this wage cap is $168,600, meaning any income earned beyond this point isn’t taxed for Social Security purposes.

This wage cap is expected to rise in 2025 due to inflation and wage growth. The wage cap plays a big role in the long-term health of Social Security. Why? Social Security faces a potential revenue shortfall over the next decade, and without changes, benefit cuts may become necessary. Raising the wage cap allows for more income to be taxed, which brings more money into the system. This helps bolster Social Security’s sustainability and could prevent future benefit cuts.

Although the wage cap may seem like an issue for workers, it’s essential for retirees as well. A more stable Social Security system means less risk of benefit reductions in the future. It’s a small but important piece of ensuring Social Security can continue to provide benefits to future generations.

Changes

While the focus is often on the COLA, retirees should also pay attention to these earnings-test limits and the wage cap updates. Together, these changes help shape how much you can earn, how much money goes into the Social Security system, and the overall financial outlook for both current and future retirees.

With these changes coming soon, it’s wise to check the SSA’s website after October 10 to see exactly how they’ll affect you. Whether you’re already retired or still working, staying informed is crucial to managing your financial future.

Social Security might seem complex, but keeping track of these key updates can help you make better decisions about your income, taxes, and long-term financial security.

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