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

More than 51 million retired workers were receiving Social Security benefits as of August 2024, and most rely on those monthly benefits to make ends meet. According to Gallup, nearly 90% of retired workers consider Social Security an important source of income.

Knowledge gaps in the field of social security can lead to financial mistakes and loss of purchasing power after retirement. Beneficiaries must therefore stay informed of changes to the program. Read on to learn about three big changes to Social Security that will take effect in January 2025.

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1. Social Security benefits will receive a cost-of-living adjustment (COLA) in 2025.

Social Security benefits are protected from inflation by cost-of-living adjustments (COLAs), 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 top financial concern for three consecutive years, according to Gallup.

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

That link currently provides details on the 2024 COLA, but should be updated sometime on October 10 to reflect the 2025 COLA. Additionally, Social Security recipients will receive a COLA notice in the mail in December explaining their updated 2025 payment amount. They can also access the information in the message center of their My Social Security account.

In the meantime, the Senior Citizens League (TSCL) estimates that benefits will increase by 2.5% in 2025. Social Security recipients can use that figure to estimate how much extra income they will receive next year. The chart below shows how a 2.5% COLA would affect the average monthly payout for different beneficiaries.

Data source: Social Security Administration, The Senior Citizens League. Payments are rounded to the nearest dollar.

2. Social Security’s full retirement age will rise in 2025

Social Security’s full retirement age (FRA) will rise next year. FRA is the claim age at which the benefit to a retired employee is equal to the primary insurance amount (PIA). When an employee reaches FRA depends entirely on their year of birth, as shown in the table below.

Data source: Social Security Administration.

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

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

So what? Employees are eligible for retirement benefits at age 62, but they will not receive their full payout (PIA) unless they claim Social Security benefits from FRA. Employees who file earlier will receive a lower benefit, meaning they will receive less than 100% of their PIA. Employees who apply later (up to age 70) will receive an increased benefit, meaning they will receive more than 100% of their PIA. The precise reduction or increase depends on how early or late Social Security benefits begin.

3. Certain retired employees under the FRA will have their benefits withheld in 2025

As mentioned, the right to a pension benefit starts at the age of 62. This applies regardless of whether someone is still working or not. But anyone claiming Social Security before FRA will have some benefits withheld if their income exceeds certain levels, known as the Retirement Income Test (RET) exempt amounts.

There are two RET limits: a lower limit that applies to employees who will not achieve FRA during the current year, and a higher limit that applies to employees who will achieve FRA during the current year. How these limits affect benefits is explained below.

• Recipients of securities subject to the FRA for the entire year will have $1 in benefits withheld for every $2 in income above the floor.

• Social Security recipients who reach FRA during the year will have $1 in benefits withheld for every $3 in earnings above the cap.

The Social Security Administration will announce the official 2025 RET limits in the same press release as the COLA. But Social Security administrators estimate the lower limit will rise to $23,280 (from $22,320) and the upper limit will rise to $61,800 (from $59,520).

RET limits do not apply after FRA, meaning Social Security recipients can earn any income without having benefits withheld. Furthermore, the withheld benefits do not constitute lost income. Instead, they are added to the monthly payments after FRA. Employees typically earn back most or all of the retained benefits over a normal lifespan.

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