Three Changes Coming for Social Security in 2025 – There is a misconception that the upcoming changes to Social Security will only affect retirees. Current workers need to pay attention to their Social Security credits and understand how much of their wages will be taxed by Social Security.
Beneficiaries can expect these three changes to take place in 2025 after the Social Security Administration (SSA) announces any final adjustments to the program in October.
Three Changes Coming for Social Security in 2025
| Aspect | Details |
|---|---|
| Cost of Living Adjustment (COLA) | Projected to be 2.57% for 2025, down from 3.2% in 2024. This is influenced by eased inflation rates. Final adjustment details will be announced in October. |
| Full Retirement Age (FRA) | Will be 66 years and 10 months in 2025 for those born between 1959 and 1960. For those born in 1960 or later, FRA will be 67. |
| Social Security Credits | To qualify for benefits, you need 40 credits. In 2025, the amount needed to earn a credit will increase from $1,730 (2024). Exact figures to be announced. |
| Wage Cap for Social Security Tax | The wage cap will increase from $168,600 in 2024. The exact new limit for 2025 will be announced later. Tax applies to earnings up to this cap. |
1. Social Security cost of living adjustment for 2025
Social Security’s cost of living adjustment is likely to be smaller than it was in 2024.
In July, inflation eased for the fourth month in a row, to 2.9%. Thanks to this milder inflation rate, retirees will receive a smaller increase on their Social Security checks next year.
The projected COLA for 2025 is 2.57%. We have to wait until October to find out what the final COLA for 2025 will be based on the July CPI numbers, the first of three sets of numbers the SSA will use. For 2024, the Social Security COLA was 3.2%.
While a lower inflation rate is expected to lead to a smaller increase in prices, it will not lower the current prices for groceries, utilities, or housing that many are having difficulty meeting. Kiplinger Inflation Outlook reported in July that grocery and energy prices were little changed and that housing costs should be easing more than they have been.
2. Full retirement age (FRA) in 2025
Those born between 1955 and 1960 will have to wait a little longer to reach their full retirement age (FRA) in 2025. The full retirement age is gradually increasing until it reaches 67.
Those turning 66 in 2025 will have 66 years and 10 months to retire. Those turning 66 in 2024 will have 66 years and 8 months to retire.
By birth year, here is when you will reach your FRA:
- Depending on your year of birth, your FRA is 66 and six months, which was reached in 2024.
- It is estimated that if you were born in 1959, you will reach FRA at 66 years and 10 months in the year 2025.
- A person born in 1960 or later will reach their FRA in 2026 if they were born in 1960 or later
- It is important to note that people born on January 1 refer to the previous year when calculating their age.
Retirement at 62, the earliest possible retirement age, will result in a lower benefit than if you wait until your full retirement age. The longer you wait, the less benefits you will receive.
A person who retires early will have their benefits reduced by five/nine percent per month before normal retirement age, up to 36 months. If the number of months exceeds 36, then your benefit will be reduced by five/12 percent per month.
You can increase your Social Security benefits in two ways if you choose to work beyond your full retirement age and delay applying for benefits: You can earn more Social Security benefits for each additional year you work, and when you retire, you will receive greater benefits because of your higher lifetime earnings.
Social Security benefits increase every year you delay starting to receive them past full retirement age. For each full year you delay starting to receive them past full retirement age, your benefit increases by 8%.
3. Social Security credits and taxes in 2025
There will be a wage cap increase for Social Security taxes in 2025, so you will have to earn more to qualify for Social Security credits.
Social Security credits. You must earn a minimum number of Social Security credits to qualify for retirement benefits. The Social Security Administration cannot pay you benefits if you don’t have enough credits. As part of eligibility for benefits, you must earn 40 work credits, and you may earn up to four credits a year.
As well as determining your eligibility for retirement or disability benefits, Medicare, and your family’s survivorship benefits, the SSA also uses the number of credits you have earned.
Earning one credit in 2024 requires a wage and self-employment income of $1,730, while earning four full credits requires a wage and self-employment income of $6,920. This amount increases annually, so it is expected to increase in 2025, but the exact amount has not been announced yet. To earn a credit in 2023, you had to earn $1,640, $90 less than you would need to earn in 2024.
You won’t receive an increase in your retirement benefit if you earn more credits after earning the 40 credits. Instead, your retirement benefit will be determined by how much you earned during your working years.
Social Security caps the amount of income you can get credit for when calculating benefits. It is currently $168,600 for 2024 and it is indexed to inflation, so you can anticipate an increase next year. When the Social Security tax limit is raised to $168,600 in 2025, you can anticipate a higher tax bill next year if you make more than that amount.
It was $160,200 in 2023, and $168,600 in 2024, a decrease of $8,400 from 2022 to 2023, when it had risen by $13,200.
Three Changes Coming for Social Security in 2025
Three Changes Coming for Social Security in 2025 – The anticipated changes in Social Security for 2025 will have significant implications for both retirees and current workers. Retirees should prepare for a potentially smaller cost of living adjustment due to eased inflation, while those approaching retirement should note the gradual increase in the full retirement age. Current workers need to be aware of adjustments to Social Security credits and tax wage caps to effectively plan their finances and maximize their benefits. Keeping informed about these changes is crucial for strategic financial planning and ensuring that you meet all requirements for Social Security benefits.
