ArcaMax

In mid-October every year, the Bureau of Labor Statistics releases its much-anticipated report on changes (usually increases) to the Consumer Price Index over the past 12 months. Why is this little esoteric government report -- actually called the Consumer Price Index for Urban Wage Earners and Clerical Workers -- so popular? Because for the past 50 years, it's the report that determines the cost-of-living adjustment (COLA) that Social Security beneficiaries will get the following year.

Because my column has a long lead time, what I am reporting here isn't news to most of my readers. As I'm sure you already heard, all 68 million Social Security beneficiaries' checks are going up 2.5% in 2025.

I always dread mentioning COLAs in this column because every single time I do, I am flooded with emails from readers complaining that the increase is not enough.

Yet here's the rub: Many economists and social planners believe Social Security COLAs are too generous! (I've explained why in past columns, but don't have the space to get into that argument today.) That's why most discussions of long-range reform for Social Security include proposals to reduce cost-of-living increases.

But for now, that's neither here nor there. Let's get back to the 2025 Social Security COLA. Due to these increases, the average monthly retirement check will be $1,976 in 2025, a $49 increase from the 2024 level. The maximum Social Security check for a worker turning full retirement age in 2025 will be $4,018, compared to $3,822 in 2024. And please note that $4,018 is the maximum for someone turning full retirement age in 2025. That does not mean it is the maximum Social Security payment anyone can receive. There are millions of Social Security beneficiaries who get much more than that, primarily because they worked well past their FRA and/or delayed starting their benefits until age 70.

Here's another important point about the COLA. Many readers have been asking me if they must file for Social Security benefits in 2024 to get the COLA that's paid in January 2025. The answer is no. The COLA will be built into the benefit computation formula. So even if you don't file for Social Security until next year, or some subsequent year, you'll still get the 2.5% increase.

Although this is a Social Security column, I must mention the upcoming increase in the Medicare Part B premium, which is deducted from Social Security checks for most people. As I was writing this column, the 2025 basic Part B premium was not yet announced. But it is projected to be $185. That's $5.20 more than the 2024 rate. And as has been the case for 20 years now, wealthy people will pay more than the basic premium.

I don't want to get into the complicated issue of Medicare premiums other than to make this quick point: Even though they are linked in the minds of most senior citizens, Social Security and Medicare are entirely separate programs, administered by entirely separate federal agencies, and they have entirely separate rules and regulations regarding their benefit and payment structures. For example, I already explained how Social Security COLAs are figured. The Part B Medicare premium increase has nothing to do with the Bureau of Labor Statistics' consumer price index. Instead, by law, it must be set at a level that covers 25% of the cost of running the program. Taxpayers pick up the remaining 75%. (And again, wealthy people pay more than the 25% share.)

Another measuring stick called the "national wage index" is used to set increases to other provisions of the law that affect Social Security beneficiaries and taxpayers. Specifically, this includes increases in the amount of wages or self-employment income subject to Social Security tax, the amount of income needed to earn a "quarter of coverage" and the Social Security earnings penalty limits.

The Social Security taxable earnings base will go up from $168,600 in 2024 to $176,100 in 2025. In other words, people who earn more than $176,100 in 2025 will no longer have Social Security payroll taxes deducted from their paychecks once they hit that threshold. This has always been a very controversial provision of the law. (Bill Gates pays the same amount of Social Security tax as his plumber!) I think it's a pretty good bet that any eventual Social Security reform package will include an increase in that wage base.

Most people need 40 Social Security work credits (sometimes called "quarters of coverage") to be eligible for monthly benefit checks from the system. In 2024, people who were working earned one credit for each $1,730 in Social Security taxable income. But no one earns more than four credits per year. In other words, once you made $6,920, your Social Security record has been credited with the maximum four credits or quarters of coverage. In 2025, the one credit limit goes up to $1,810, meaning you will have to earn $7,240 this coming year before you get the maximum four credits assigned to your Social Security account.

People under their full retirement age who get Social Security retirement or survivor's benefits but who are still working are subject to limits in the amount of money they can earn and still receive all their Social Security checks. That limit was $22,320 in 2024 and will be $23,400 in 2025. For every $2 a person earns over those limits, $1 is withheld from his or her monthly benefits.

There is a higher earnings threshold in the year a person turns full retirement age that applies from the beginning of the year until the month the person reaches FRA. (The income penalty goes away once a person reaches that magic age.) That threshold goes up from $59,520 in 2024 to $62,160 in 2025.

A couple other Social Security provisions are also impacted by inflationary increases. For example, people getting disability benefits who try to work can generally continue getting those benefits as long as they are not working at a "substantial" level. In 2024, the law defined substantial work as any job paying $1,550 or more per month. In 2025, that substantial earnings level increases to $1,620 monthly.

Finally, the Supplemental Security Income basic federal payment level for one person goes up from $943 in 2024 to $967 in 2025. SSI is a federal welfare program administered by the Social Security Administration, but it is not a Social Security benefit. It is paid for out of general revenues, not Social Security taxes.

========

If you have a Social Security question, Tom Margenau has two books with all the answers. One is called "Social Security -- Simple and Smart: 10 Easy-to-Understand Fact Sheets That Will Answer All Your Questions About Social Security." The other is "Social Security: 100 Myths and 100 Facts." You can find the books at Amazon.com or other book outlets. Or you can send him an email at thomas.margenau@comcast.net. To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Copyright 2024 Creators Syndicate, Inc.