Three Changes Coming for Social Security in 2025
As we approach 2025, several changes are expected to impact Social Security. While the Social Security Administration (SSA) will announce final adjustments in the second week of October, here are three anticipated changes that could affect your planning:
1. Social Security Cost of Living Adjustment (COLA) for 2025
The Social Security cost of living adjustment for 2025 is projected to be smaller than in previous years. With inflation easing to 2.9% in July, retirees can expect a COLA of approximately 2.57%. This adjustment is based on July's Consumer Price Index (CPI) numbers, which will be finalized in October. For comparison, the 2024 COLA was 3.2%.
Even though a lower inflation rate should mean smaller increases in prices, it does not reduce the current costs for essentials like groceries, utilities, or housing. According to the Kiplinger Inflation Outlook, grocery and energy prices have remained stable, and housing costs are expected to ease more gradually.
2. Full Retirement Age (FRA) in 2025
In 2025, the full retirement age (FRA) will increase to 66 years and 10 months. This change applies to individuals born between 1955 and 1960, gradually reaching up to 67 for those born in 1960 or later. Here’s a breakdown by birth year:
- Born in 1958: FRA is 66 years and 6 months (reached in 2024)
- Born in 1959: FRA is 66 years and 10 months (reached in 2025)
- Born in 1960 or later: FRA is 67 years (reached in 2026 and beyond)
Retiring at age 62 will result in reduced benefits compared to waiting until FRA. For each month you retire before FRA, benefits are reduced by 5/9 of 1% for up to 36 months, and 5/12 of 1% for any additional months. Delaying retirement beyond FRA increases benefits by 8% per year until age 70.
3. Social Security Credits and Taxes in 2025
In 2025, the requirements for Social Security credits and the wage cap for Social Security taxes will see adjustments:
- Social Security Credits: To earn one credit in 2024, you need $1,730 in wages or self-employment income. Four credits require $6,920. These amounts will increase in 2025, though the exact figures will be announced later. For comparison, the 2023 credit requirement was $1,640 per credit.
- Wage Cap: The cap on income subject to Social Security tax is expected to rise from $168,600 in 2024. This limit is indexed to inflation, so if you earn more than this amount, expect a higher tax bill in 2025. The cap increased by $8,400 from 2023 to 2024, following a $13,200 increase the previous year.
Stay informed about these changes to maximize your Social Security benefits and plan effectively for the coming year.
