As 2025 approaches, Social Security is expected to undergo a few significant changes that will impact both retirees and current workers. While the Social Security Administration (SSA) won’t officially announce these changes until mid-October, it’s crucial to start planning ahead. Here’s a look at three key changes you can expect to see in 2025.
1. Smaller COLA
One of the most anticipated changes for 2025 is a likely smaller Social Security cost-of-living adjustment (COLA). The COLA is based on inflation, which determines how much your Social Security checks increase each year. With inflation easing in recent months, the projected COLA for 2025 is 2.5%, down from the 3.2% increase in 2024.
The final COLA will be announced in October, and it’s calculated using inflation data from July, August, and September. While a lower inflation rate means less dramatic price increases, it doesn’t necessarily reduce the high costs of groceries, utilities, or housing that many retirees face. For those living on fixed incomes, a smaller COLA may not provide much relief from the everyday costs of living.
For comparison, in years of high inflation, retirees saw more substantial increases. However, the current inflation trends suggest that a 2.5% adjustment will be the norm for 2025.
2. Higher FRA
In 2025, the full retirement age (FRA) will continue to increase gradually. The FRA is the age at which you are entitled to your full Social Security benefit. For those born in 1959, the FRA in 2025 will be 66 years and 10 months. This is part of a gradual increase in FRA for individuals born between 1955 and 1960. If you were born in 1960 or later, your FRA will be age 67, which will be effective starting in 2026.
Here’s a breakdown of full retirement age by birth year:
| Year of Birth | Full Retirement Age (FRA) |
|---|---|
| 1958 | 66 years and 6 months |
| 1959 | 66 years and 10 months |
| 1960 and later | 67 years |
If you choose to retire early at age 62, your benefits will be reduced. The reduction is 5/9 of 1% for each of the first 36 months before your FRA, and 5/12 of 1% for any additional months. On the other hand, delaying retirement beyond your FRA allows your benefits to grow by 8% for each year you delay, until age 70.
3. Changes
In 2025, workers will need to earn more to qualify for Social Security credits, and the wage cap for Social Security taxes will also increase.
Social Security Credits
You need 40 credits to qualify for Social Security benefits. In 2024, workers earn one credit for every $1,730 in wages, and they can earn up to four credits per year. This amount increases annually, so you’ll likely need to earn more in 2025 to obtain the same four credits. For example, in 2023, workers only needed $1,640 per credit, $90 less than in 2024.
The credits you accumulate determine your eligibility for Social Security benefits, including retirement, disability, and survivor benefits. However, once you earn the required 40 credits, earning more doesn’t increase your benefit amount. Your final benefit is based on your highest-earning 35 years of work history.
Social Security Wage Cap
Each year, the SSA sets a cap on the amount of income subject to the Social Security tax (6.2%). In 2024, the wage cap is $168,600, meaning any income earned above that amount isn’t subject to Social Security taxes. This cap is indexed to inflation, so it’s expected to rise again in 2025.
To give you an idea of the trend, the wage cap in 2023 was $160,200, and it increased by $8,400 for 2024. If inflation continues to moderate, the increase in 2025 might be smaller, but it will still affect those earning high incomes. High earners should expect a larger tax bill as a result of this higher wage cap.
Planning Ahead
Knowing these upcoming Social Security changes for 2025 can help both retirees and current workers make informed decisions. Whether you’re planning when to retire or calculating your future benefits, knowing the latest on COLA adjustments, full retirement age, and Social Security credits is crucial. Start thinking about how these changes might affect your financial plans in the coming year.
FAQs
How much is the projected Social Security COLA for 2025?
The projected COLA for 2025 is 2.5%, down from 3.2% in 2024.
When will the full retirement age increase in 2025?
In 2025, the FRA will be 66 years and 10 months for those born in 1959.
How many Social Security credits do I need for benefits?
You need 40 credits to qualify for Social Security benefits.
What is the wage cap for Social Security taxes in 2024?
The wage cap in 2024 is $168,600, and it is expected to increase in 2025.
Can delaying retirement increase my Social Security benefits?
Yes, delaying retirement past your FRA can increase your benefits by 8% annually until age 70.
