3 big changes to Social Security are coming in 2025. Here’s what retirees need to know.

As of August 2024, more than 51 million retired workers received a Social Security check, and most of them make ends meet thanks to these monthly benefits. According to Gallup, nearly 90% of retired workers consider Social Security to be an important source of income.

Knowledge gaps about Social Security can lead to financial mistakes and loss of purchasing power in retirement. Therefore, beneficiaries must be kept informed about changes in the program. Read on to learn about three big changes to Social Security that go into effect in January 2025.

1. Social Security Benefits Will Be Cost of Living Adjusted (COLA) in 2025

Social Security benefits are protected against inflation through cost-of-living adjustments (COLA), which are annual wage increases tied to a subset of the Consumer Price Index known as the CPI-W. The 2025 COLA is especially important because Americans have ranked inflation as their biggest financial concern for three years in a row, according to Gallup.

The COLA amount applied to benefits in 2025 depends on the percentage increase in the CPI-W in the third quarter of 2024, the three months from July to September. The Bureau of Labor Statistics will release September CPI-W data on October 10 at 8:30 a.m. ET. Shortly thereafter, the Social Security Administration will issue a press release with details about the official 2025 COLA (available at this link).

This link currently provides detailed COLA information for 2024, but should be updated at some point on October 10 to reflect the 2025 COLA. Additionally, Social Security recipients will receive a COLA notice in the mail in December explaining the updated payment amount for 2025. They may also Access information in the Message Center in your my Social Security account.

Meanwhile, the Senior Citizens League (TSCL) estimates that benefits will increase by 2.5% in 2025. Social Security beneficiaries can use that number to estimate how much additional income they will earn next year. The chart below shows how a 2.5% COLA will affect the average monthly payout for various beneficiaries.

Data Source: Social Security Administration, Senior Citizens League. Payments have been rounded to the nearest dollar.

2. In 2025, the full ZUS retirement age will increase

Social Security’s full retirement age (FRA) will be raised next year. FRA is the retirement eligibility age at which the benefit paid to a retired employee will be equal to his or her Primary Insurance Amount (PIA). When an employee reaches FRA depends entirely on his or her year of birth, as detailed in the chart below.

Data source: Social Security Administration.

Based on the above information, two groups of workers will reach (or have already achieved) FRA this year: (1) those born in the second half of 1957 will reach FRA in the first half of 2024 at the ages of 66 and 6 months, and (2) those born in the first four months of 1958 will reach FRA at age 66 and 8 months in the last four months of 2024.

FRA will increase in 2025 such that (1) workers born in the last eight months of 1958 will reach FRA at ages 66 and 8 months in the first eight months of 2025, and (2) workers born in the first two months of 1959 achieve FRA of 66 and 10 months in the last two months of 2025.

So what? Workers are eligible for retirement benefits at age 62, but they will not receive their full payment, or PIA, unless they claim Social Security at FRA. Employees who opted in early receive a reduced benefit, meaning they receive less than 100% of their PIA. Employees who apply later (up to age 70) will receive an enhanced benefit, meaning they will receive more than 100% of their PIA. The exact reduction or increase depends on how early or late your National Insurance contributions start.

3. In 2025, certain retired employees covered by FRA will have their benefits terminated

As already mentioned, pension entitlement begins at the age of 62. This happens regardless of whether the person is still working. However, anyone who claims Social Security before FRA will have certain benefits withheld if their income exceeds a certain level, called the Retirement Earnings Test (RET) exempt amount.

There are two RET limits: a lower limit, which applies to employees who do not achieve FRA in the current year, and a higher limit, which applies to employees who achieve FRA in the current year. The impact of these limits on benefit payments is explained below.

• Full-year FRA protection recipients will have $1 in benefits retained for every $2 of earnings above the lower limit.
• Social Security beneficiaries who reach FRA during the year will have $1 in benefits withheld for every $3 in earnings above the upper limit.

The Social Security Administration will announce the official RET limits for 2025 in the same news release as COLA. However, Social Security trustees estimate that the lower limit will increase to $23,280 (from $22,320) and the upper limit will increase to $61,800 (from $59,520).

RET limits do not apply after FRA, which means Social Security recipients can earn any amount of income without benefit deductions. Additionally, withheld benefits do not constitute lost income. Instead, they are added to your monthly payments after FRA. Employees typically recover most or all of their withheld benefits over a typical lifespan.