3 Key Social Security Changes Coming in 2025 Besides the 2.5% COLA

The Social Security program undergoes revisions each year to account for changes in wages and prices across the economy. Often, benefits are the largest source of income for retired workers, so understanding the changes could be the difference between prudent financial planning and costly mistakes.

Most readers probably know Social Security payments receive annual cost-of-living adjustments (COLA) designed to protect the buying power of benefits from inflation. For instance, beneficiaries will get a 2.5% COLA in 2025, but there are other important changes coming to Social Security next year.

Read on to learn more.

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1. Social Security's full retirement age (FRA) is increasing in 2025

Social Security's full retirement age (FRA) is the claim age at which benefits awarded to a retired worker equal their primary insurance amount (PIA), which is another term for baseline benefit. When a worker reaches FRA depends on when they were born, as shown in the chart below.

Data source: Social Security Administration.

As shown above, two groups of beneficiaries reached FRA in 2024: (1) Workers born in the second half of 1957 attained FRA at age 66 and 6 months between January and June 2024, and (2) workers born in the first four months of 1958 attained FRA at age 66 and 8 months between September and December 2024.

FRA will increase in 2025, such that (1) workers born in the last eight months of 1958 will reach FRA at age 66 and 8 months between January and August 2025, and (2) workers born in the first two months of 1959 will reach FRA at age 66 and 10 months between November and December 2025.

Why it matters: Claim age is a major determinant of Social Security payments. Workers that claim Social Security before FRA get a reduced benefit, such that their payout will be less than 100% of their PIA. But workers that claim Social Security after FRA receive an increased benefit, such that their payout will be more than 100% of their PIA.

2. Social Security's maximum retired-worker benefit is increasing in 2025

Social Security retired-worker benefits are based on lifetime income and claim age. Specifically, payouts become progressively larger as income and claim age increase. But the benefits formula is adjusted each year to account for changes in the average wage.

Generally speaking, wages rise over time, so the maximum Social Security benefit generally increases too. The chart below shows the maximum Social Security benefit for retired workers at different claim ages in 2025.

Data source: Social Security Administration.

Why it matter: Very few workers earn enough to qualify for the maximum Social Security benefit. Doing so requires income exceeding the maximum taxable earnings limit for 35 years, and fewer than 7% of workers satisfy that requirement in any given year. But the chart still teaches an important lesson: Starting Social Security at age 70 (the latest sensible claim age) results in a much larger payout than starting at age 62 (the earliest possible claim age).

3. Social Security's retirement earnings test (RET) amounts are increasing in 2025

Workers that claim Social Security before FRA will have some benefits temporarily withheld if their income exceeds certain limits known as the retirement earnings test (RET) amounts. There are two thresholds, and the updated amounts for 2025 are discussed below:

• The low limit is $23,400: That means workers younger than FRA for entire year will have $1 in benefits withheld for every $2 in income above the low RET limit.
• The high limit is $62,160: That means workers that reach FRA during the year will have $1 in benefit withheld for every $3 in income above the high RET limit.

Importantly, the RET limits no longer matter once a worker reaches FRA. At that point, benefits will not be withheld regardless of income. Additionally, any benefits previously withheld are gradually repaid once a worker reaches FRA, such that they recoup most or all of their Social Security over a typical lifespan.

Why it matters: The RET limits are adjusted annually based on the average wage level, with the result that early claimers (i.e., workers who collect Social Security before FRA) can typically earn a little extra income before benefits are withheld. For instance, compared to the RET limits in 2024, the lower limit will increase $1,080 and the higher limit will increase $2,640 in 2025.

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