In 2025, significant changes are expected to impact Social Security, affecting both current retirees and workers. These adjustments will influence cost-of-living adjustments (COLA), full retirement age (FRA), and Social Security credits and taxes. Here’s a detailed look at what to expect and how to prepare.
Key Takeaways
- Smaller cost-of-living adjustment (COLA) expected in 2025
- Full retirement age (FRA) will increase
- Higher earnings required for Social Security credits and increased wage cap for Social Security taxes
Smaller Cost-of-Living Adjustment (COLA)
Due to easing inflation rates, the Social Security cost-of-living adjustment (COLA) for 2025 is projected to be smaller than in 2024. The projected COLA for 2025 is 2.57%, based on July’s Consumer Price Index (CPI) numbers. This is a decrease from the 3.2% COLA in 2024. While lower inflation rates should lead to smaller price increases, they do not reduce current prices for essentials like groceries, utilities, or housing.
Full Retirement Age (FRA) in 2025
The full retirement age (FRA) is gradually increasing for those born between 1955 and 1960. In 2025, the FRA will be 66 years and 10 months, up from 66 years and 8 months in 2024. 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 after)
Retiring at age 62, the earliest possible Social Security retirement age, will result in lower benefits. Early retirement reduces benefits by 5/9 of one percent for each month before FRA, up to 36 months. Beyond 36 months, the reduction is 5/12 of one percent per month. Delaying retirement beyond FRA can increase benefits by 8% per year until age 70.
Social Security Credits and Taxes in 2025
In 2025, higher earnings will be required to qualify for Social Security credits, and the wage cap for Social Security taxes will increase. To earn one credit in 2024, you need $1,730 in wages or self-employment income, totaling $6,920 for four credits. This amount will rise in 2025, though the exact figure is yet to be announced.
The wage cap for Social Security taxes is also set to increase. In 2024, the cap is $168,600, up from $160,200 in 2023. This cap is indexed to inflation, so it will likely rise again in 2025, resulting in a higher Social Security tax bill for those earning above the cap.
These changes underscore the importance of staying informed and planning ahead to maximize Social Security benefits. Whether you are nearing retirement or still in the workforce, understanding these adjustments can help you make more informed financial decisions.
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