Social Security helps over 70 million people meet their basic needs, fight poverty, and enjoy retirement. Whether you’re currently using it or planning to in the future, it’s important to know about any changes to Social Security. Here’s a look at the major changes coming in 2025.
Cost of Living Adjustment (COLA)
COLA Increase
One of the biggest changes in 2025 is the cost of living adjustment (COLA). In 2024, Social Security payments went up by 3.2%. For 2025, experts predict a smaller increase, between 2.6% and 3.2%. The COLA helps retirees keep up with rising costs.
However, due to a flawed calculation method, retirees have lost 36% of their purchasing power since 2000, according to the Senior Citizens League. With a smaller COLA in 2025, retirees might find it harder to keep up with inflation.
Full Retirement Age (FRA)
Changes to Retirement Age
Another important change is the full retirement age (FRA). If you were born in 1959 and turn 66 in 2024, your FRA will be 66 years and 10 months. For those born in 1960 or later, the FRA will increase to 67 by 2026.
These changes, started by reforms in the 1980s, aim to keep Social Security financially stable. With the Social Security trust fund facing potential shortfalls, future reforms could raise the FRA even more. Retiring before reaching the FRA means facing penalties, which can reduce your lifetime benefits.
Maximum Taxable Earnings
Tax Cap Increase
The maximum taxable earnings subject to Social Security taxes will also rise in 2025. This change affects high earners. The current cap is $168,600, but it usually increases yearly to keep up with wage growth.
In 2023, the cap was $160,200. Estimates suggest the cap will rise to $174,900 in 2025. This means workers earning more than $168,600 might pay Social Security taxes on an additional $6,300.
Social Security Changes (2023-2025)
Year | COLA Increase | FRA (for those born 1959) | Max Taxable Earnings |
---|---|---|---|
2023 | 3.2% | 66 years 10 months | $160,200 |
2024 | 2.6% – 3.2% | 66 years 10 months | $168,600 |
2025 | TBD | 67 years (born 1960+) | $174,900 |
These changes show why it’s important to stay updated on Social Security. Whether it’s the COLA increase, changes to the full retirement age, or the rise in taxable earnings, each adjustment affects your retirement plans. Knowing these changes can help you plan better and ensure your financial stability.
Staying informed about changes in Social Security is crucial for planning your retirement. The COLA adjustments, changes in the full retirement age, and increases in the tax cap all impact your financial future. By keeping up to date, you can make better decisions and secure your financial stability for the years ahead.
FAQs
What is the COLA increase for 2025?
The COLA increase for 2025 is expected to be between 2.6% and 3.2%.
What is the full retirement age for those born in 1960 or later?
The full retirement age will be 67 for those born in 1960 or later.
What is the new tax cap for 2025?
The maximum taxable earnings cap is estimated to increase to $174,900 in 2025.
How does the COLA adjustment affect retirees?
The COLA adjustment helps protect retirees’ purchasing power amid rising costs. However, due to calculation flaws, retirees have lost some purchasing power over the years.
Why is it important to stay informed about Social Security changes?
Staying informed about changes helps in planning and securing financial stability for your retirement.