social security cola increase 2025: As 2025 approaches, Social Security is set to undergo significant changes that could affect retirees, current workers, and those planning for their financial future. From adjustments in benefits to changes in eligibility requirements, understanding these updates will help you navigate the new landscape and make informed decisions. Here’s what you need to know about the three key changes coming to Social Security in 2025.
1. Smaller Cost of Living Adjustment (COLA)
The Cost of Living Adjustment (COLA) for Social Security benefits is projected to be smaller in 2025 compared to previous years. With inflation rates easing, retirees might see a modest increase in their Social Security checks, far less than what they received during high-inflation years.
- Expected COLA for 2025: 2.57%
- 2024 COLA: 3.2%
While a lower inflation rate generally means slower price increases, it doesn’t roll back the high costs of essentials like groceries, utilities, and housing that many are struggling to afford. The final COLA for 2025 will be announced in October, but beneficiaries should prepare for a smaller bump in their checks.
2. Higher Full Retirement Age (FRA)
In 2025, the Full Retirement Age (FRA) will rise again, continuing the gradual increase for those born between 1955 and 1960. This shift means that individuals born in 1959 will have to wait until they reach 66 years and 10 months to claim full benefits, compared to 66 years and 8 months in 2024.
Here’s how the FRA is changing:
- Born in 1958: FRA was 66 years and 6 months in 2024.
- Born in 1959: FRA is 66 years and 10 months in 2025.
- Born in 1960 or later: FRA will be 67 years starting in 2026.
Retiring before your FRA will reduce your monthly benefits, so if you can wait, delaying retirement could boost your future Social Security payments. Each year you delay benefits past your FRA, up until age 70, your benefits increase by 8%.
3. Increased Social Security Credits and Wage Cap
Earning enough Social Security credits is crucial for qualifying for retirement benefits, and in 2025, the bar will be set higher. Additionally, the wage cap—the maximum amount of income subject to Social Security taxes—will also rise.
- Social Security Credits: In 2024, you need to earn $1,730 to receive one credit, with a maximum of four credits per year. This amount will increase in 2025, though the exact figure has yet to be announced.
- Wage Cap: The cap is set to rise from $168,600 in 2024, reflecting inflation. For those earning above this threshold, this means a higher tax bill.
Earning more than the required 40 credits won’t increase your benefit, but your retirement benefit is calculated based on your highest-earning years. So, even as you meet the credit threshold, how much you earn over your career continues to impact your eventual benefits.
Preparing for the Changes
Understanding these upcoming changes can help you plan better for 2025. Whether you’re a current retiree or a worker looking ahead, staying informed about Social Security updates ensures you can make the most of your benefits and navigate your retirement with confidence.
