As the year approaches, it’s time to start thinking about your finances for 2025.

If you’re retired or soon to retire, Social Security will likely play a role in your financial future. More than 40% of baby boomers say their benefits will be their primary source of income in retirement, according to a 2024 report from the Transamerica Center for Retirement Studies, so it’s wise to stay on top of how your benefits are going.

Each year brings new adjustments to the Social Security program, and while many of these changes are subtle, they can still have a major impact on your retirement. From the latest cost of living adjustment to various income limits, here are the good (and not so good) changes retirees can expect starting next year.

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The good news is coming in 2025

1. COLA increases

The first good news is that beneficiaries will see their benefits increase by 2.5% from January, thanks to the cost of living adjustment (COLA). The average retiree receives just over $1,900 per month in benefits, which equates to an increase of about $50 per month.

Although this will be the smallest COLA since 2021 (and significantly lower than the 5.9% and 8.7% increases seen in 2022 and 2023, respectively), there is a silver lining: it means inflation slows down.

The COLA is directly linked to changes in inflation, which is why adjustments were so high in 2022 and 2023, when costs were skyrocketing. As of October 2024, the 12-month percentage change in the Consumer Price Index was 2.6%, as measured by the Bureau of Labor Statistics, well below the record high of 9.1% reached in June 2022.

A smaller COLA will be disappointing for many retirees, but lower costs will likely have a bigger impact on your finances than a slightly higher adjustment.

2. Income testing limits are increasing

If you are under your full retirement age (FRA) and you are still working in any capacity while collecting Social Security, you will be subject to the Retirement Income Test. This is an income limit that determines how much, if any, of your benefits will be withheld due to your income.

There are two different limits, depending on whether or not you reach your FRA in 2025. Your FRA will depend on your year of birth, but it is 67 for anyone born in 1960 or later. The more money you earn, the more you can expect to have your benefits withheld.

The good news, however, is that both of these income limits will increase in 2025. That means you’ll be able to earn more before facing benefit cuts.

Source: Social Security Administration. Table by author.

So, for example, let’s say you are 64 years old with an FRA of 67 and you earn $30,000 per year working part time. You won’t meet your FRA this year, so you’ll be subject to the lower income limit. In 2024, your income exceeds the limit by $7,680, which reduces your benefits by $3,840 per year, or $320 per month.

However, assuming your income doesn’t change in 2025, that salary will only exceed the new limit by $6,600. In this case, your benefits will only be reduced by $3,300 per year, or $275 per month. In other words, you can keep an extra $45 per month without lifting a finger.

The less good news

1. It will be more difficult to obtain the maximum profit

Most of the changes to Social Security next year are positive. In addition to the COLA and increased earnings test limits, the maximum benefit will also increase from $4,873 per month to $5,108 per month.

However, a higher maximum benefit also means that the taxable earnings limit increases. This limit is the highest income subject to Social Security taxes, and you will need to consistently reach this cap to earn the maximum amount of benefits possible.

In 2024, the limit is $168,600 per year. However, starting next year, this amount will increase significantly to $176,100 per year. Not only will this make it harder to get the maximum benefit, but if you earn between $168,600 and $176,100 a year, you’ll have to pay Social Security taxes on more of your income.

With several changes on the horizon, it’s wise to stay informed about how Social Security adjustments will affect your finances. The more you can start preparing now, the better off you will be for next year.