Social Security Changes Expected in 2025: What Beneficiaries Need to Know

Social Security beneficiaries should prepare for several changes in 2025, including a potentially smaller Cost of Living Adjustment (COLA).

Smaller COLA Increase Anticipated

While the official COLA figures won’t be released until October, early estimates suggest that the adjustment for 2025 may be lower than the 3.2% increase received in 2024. This potential decrease is tied to the recent easing of inflation, with year-over-year inflation reaching its lowest level in over three years in July 2024.

The annual COLA is determined based on the average inflation rate during the third quarter of the year, from July through September. According to the Senior Citizens League, the COLA for 2025 is estimated at 2.6%, reflecting the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data from July 2024. If this estimate holds, it will result in a smaller monthly increase in Social Security checks for retirees compared to recent years when inflation was higher.

Changes to Full Retirement Age (FRA)

Another significant change expected in 2025 is the continued gradual increase in the Full Retirement Age (FRA) for Social Security benefits. For those born between 1943 and 1954, the FRA remains 66. However, for individuals born between 1955 and 1960, the FRA is increasing incrementally. By 2025, the FRA will be 66 years and 10 months for those born in 1959. This means that those approaching retirement should carefully consider their timing when deciding to claim Social Security benefits. The age at which you begin collecting benefits can significantly impact the amount you receive monthly. Delaying benefits until the full retirement age or later can result in higher monthly payments, while claiming early can reduce your benefits.

Social Security Credits and Wage Cap Adjustments

To qualify for Social Security benefits, Americans must earn at least 40 Social Security credits. These credits are accrued by working and paying Social Security taxes. As of 2024, workers earn one credit for every $1,730 in covered earnings, with a maximum of four credits available per year. The earnings threshold required to earn a credit can increase annually, but the exact figure for 2025 has yet to be announced.

In addition to credits, the wage cap, which limits the amount of income subject to Social Security taxes, is also expected to rise in 2025. For 2024, the wage cap was set at $168,600, reflecting an $8,400 increase from the previous year. While the exact wage cap for 2025 is not yet confirmed, experts predict that it will continue to increase, meaning higher earners may see more of their income subject to Social Security taxes.

These anticipated changes highlight the importance of staying informed about Social Security developments and planning accordingly. Beneficiaries and workers alike should be aware of how adjustments to COLA, FRA, credits, and the wage cap could impact their financial planning for retirement.