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If you are retired or planning to retire soon, it is important to have a plan for your retirement income. For most people, Social Security will play an important role in this plan, so staying up to date on the latest benefit information is crucial.

The Social Security Administration (SSA) recently announced several important changes to the program for 2025, including the Annual Cost of Living Adjustment (COLA). Here are some key Social Security changes coming next year — and what you need to know.

Watch for these 5 Social Security changes in 2024

More than 72.5 million people rely on one of Social Security's benefit programs, so annual changes to the program and its payouts are always eagerly anticipated.

This year's cost of living adjustment (COLA) is smaller than last year's 3.2 percent increase. Still, any additional income is a welcome boost for benefit recipients living on a fixed income. (If you need help developing a plan for your retirement income, consider hiring a financial advisor.)

1. The cost of living adjustment (COLA) increases

The SSA has announced that benefit checks will increase by 2.5 percent in 2025. The 2.5 percent adjustment will amount to an average increase of $50 in monthly benefits for Social Security retirees starting in January.

Specifically, the average check for retired workers will increase from $1,927 to $1,976. For a couple where both partners receive benefits, the estimated payment increases from $3,014 to $3,089.

The SSA has linked COLA adjustments to the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W) since 1975. To determine the COLA, SSA compares the third quarter CPI-W of the previous year with the third quarter CPI-W of the current year. The COLA is then adjusted based on the percentage change in the CPI-W from one year to the next.

2. The maximum taxable income increases

In 2024, the maximum earnings subject to Social Security tax was $168,600. That means workers who pay into the system will be taxed on wages up to that amount, typically at a rate of 6.2 percent. In 2025, the maximum earnings will rise to $176,100, meaning a larger portion of a worker's income will be subject to tax. This adjustment is due to an increase in average wages in the United States

3. The maximum social security benefit should also be increased

The maximum Social Security benefit for a worker retiring at full retirement age will increase from $3,822 in 2024 to $4,018 in 2025. This maximum applies to those who retire at full retirement age, which is 67 for anyone born after 1960.

For people who retire before reaching full retirement age, the maximum benefit will be lower because in such cases benefits will be reduced. On the other hand, those who retire after reaching full retirement age can increase their maximum pension by postponing retirement.

4. Average benefits for spouses and disabled workers are also increasing

Average benefits will rise across the board in 2025, and that includes benefits for people like widows, widowers and the disabled. This is how these numbers look:

• The SSA says the average widowed mother with two children will see an increase from $3,669 to $3,761.
• For elderly widows and widowers living alone, the pension increases from $1,788 to $1,832.
• For a disabled employee with a spouse and one or more children, the benefit increases from $2,757 to $2,826.

Of course, these are average values ​​and individual situations may vary.

5. Social security adjusts the allowances for the earnings test

If you receive Social Security retirement benefits before you reach full retirement age, the program may reduce your benefits if your income exceeds certain limits. This is called the retirement income test and can take a significant portion of your benefits if you are still working. In 2025, the exemption amounts from the pension earnings test will be as follows:

If you start collecting Social Security before full retirement age, you could earn up to $1,950 per month ($23,400 per year) in 2025 before the SSA begins withholding benefits of $1 in benefits for every $2 over the limit. In 2024, the maximum tax-free earnings were $1,860 per month ($22,320 per year).

In the year in which you reach full retirement age, this rule continues to apply, but only until the month in which you reach full retirement age and with much more favorable conditions. In 2025, you can earn up to $5,180 per month ($62,160 per year) before benefits are withheld, at a benefit rate of $1 for every $3 over the limit (instead of $2). In 2024, the threshold was $4,960 per month ($59,520 per year).

Conclusion

The 2025 Social Security COLA provides retirees and others with an increase in their benefits. However, this is not the only change to the program. Other levels and thresholds have also been adjusted to reflect ongoing cost increases.