On October 10th, the Social Security Administration announced that the annual Cost of Living Adjustment (COLA) for benefits paid and wages subject to payroll taxes will increase by 2.5% in 2025. As the pace of inflation has subsided, this will be the lowest COLA for Social Security since 2021, when benefits increased by just 1.3%. The COLA will go into effect for Social Security benefits being paid in January of 2025.
For those still working, the COLA increases the amount of earnings that are subject to FICA taxes, which fund both Social Security and Medicare. Employers and employees each pay 7.65% of wages to fund Social Security and Medicare (self-employed individuals pay both the employer and employee share). The 2025 COLA will increase the maximum amount of wages subject to the 6.2% portion of the FICA tax that funds Social Security from $168,600 in 2024 to $176,100 in 2025.
The remaining 1.45% of the FICA tax is used to fund Medicare and applies to all earnings, even those above the Social Security limit of $176,100. Married couples filing jointly who make in excess of $250,000 and individuals who earn more than $200,000 pay an additional 0.9% in Medicare taxes- this is the same as in 2024.
The COLA also means the average retirement benefit will increase by approximately $49, from $1,927 per month up to $1,976 per month. The maximum retirement benefit for someone who retires at “full” retirement age in 2025 will increase from $3,822 per month to $4,018 per month.
As for Medicare Part B premiums, they will increase from $174.70 per month to $185 per month, or $10.30 more per month. This equates to an increase of approximately 5.9%.
If you have any questions regarding the impact to your unique situation regarding the new 2025 Social Security Cost of Living Adjustment, or the estimated increase in Medicare Part B premiums, please feel free to contact our office. We always stand ready to help our trusted clients and friends as we all “Move Life Forward.”
© 2024 Nathan Ollish
Senior Financial Advisor
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