3 Important Social Security Changes

Key Social Security changes in 2025 will impact current retirees and workers who are contributing to the system but won't receive benefits for some time.

Here's what's changing:

Cost of Living Adjustment will be less

A significant change for retirees is the cost-of-living adjustment (COLA). In previous years, benefits increased to keep pace with inflation. While this trend will likely continue in 2025, the benefit increase will be less than in recent years.

In 2024, for example, retirees saw Social Security checks increase by 3.2%. While the 2025 raise won't be announced for a while, the Senior Citizens League estimates the increase will be lowered to around 2.6%. That's the lowest COLA since the 1.3% raise in 2021.

COLAs are intended to ensure that retirees maintain their spending power even as prices rise. Unfortunately, many experts feel the COLA formula isn't well-designed, and the Senior Citizens League estimates benefits have lost 36% of their buying power since 2000. A smaller COLA in 2025 is likely to leave retirees even further behind.

Full retirement age is increasing

A change to the full retirement age (FRA) could also impact those nearing retirement.

Based on your birth year, FRA is the age at which you can retire and receive full benefits. The FRA for anyone born in 1958, for example, is 66 years and eight months old.

That line is set to be pushed back, however, with those born in 1959 and turning 66 next year forced to wait until they are 66 years and 10 months old before they receive their full benefit.

In 2026, FRA will increase again—anyone born in 1960 or later will have an FRA of 67.

This shift is because of Social Security's reforms enacted in the 1980s, with legislation in 1983 aimed at shoring up Social Security by gradually phasing in a later FRA to stabilize the program's finances. With the trust fund facing more shortfalls by 2035, lawmakers may make subsequent changes to the program that could push FRA later again. Based on the current law, however, no changes are expected after 2026.

Still, this means those who are retiring next year must decide between waiting longer to claim their first check or accepting a lifetime reduction in monthly benefits due to early filing penalties.

The maximum taxable income is increasing

The last change involves the maximum Social Security taxes American workers will pay, which impacts high earning workers.

Currently, the amount of income taxed by Social Security is capped. Workers are taxed on earned income up to $168,600, but this amount increased in past years to account for wage growth. In 2023, for example, workers paid Social Security taxes on only up to $160,200 in annual income.

According to projections from the Social Security Trustees, the cap will likely rise to $174,900 next year. Consequently, some workers earning over $168,600 could find themselves owing taxes on up to $6,300 more income.

With 2024 half over, current and future retirees need to be aware of these changes and prepare accordingly. Visit our Investing and Retirement page for more helpful tips.