The Social Security program undergoes several important changes every year to keep benefit payments aligned with inflation and wages. Given that benefits are often the largest source of income for Americans aged 65 and older, it is crucial that retired workers and other recipients stay informed. Doing so can help prevent costly financial mistakes.
Read on to learn about three important changes coming to Social Security in 2025.
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1. Social Security benefits will get a cost-of-living adjustment (COLA) in 2025
Annual cost-of-living adjustments (COLAs) protect the buying power of Social Security benefits by ensuring payments increase at the same pace as inflation. Without COLAs, beneficiaries would effectively receive less money with each passing year.
For instance, a subset of the Consumer Price Index known as the CPI-W rose at 2.7% annually during the 10-year period that ended in December 2023. That means a market basket of goods and services became about 30% more expensive over that decade. But Social Security increased by about the same amount, keeping the buying power of benefits more or less constant.
Next year, Social Security benefits will receive a 2.5% COLA, which equates to an additional $49 per month for the average retired worker and $23 per month for the average spouse. That falls below the 10-year average of 2.75%, so the pay increase may seem unusually small, especially because beneficiaries received much larger COLAs in the last three years.
2. Social Security's maximum retired-worker benefit will increase in 2025
Social Security retired-worker benefits are determined based on a person's lifetime income and claim age, such that payouts become progressively larger as income and claim age increase. The benefits formula is modified annually based on changes in the average wage, thereby ensuring Social Security payments reflect the general rise in wages that occurs over time.
Consequently, the maximum Social Security benefit for new retired workers tends to increase from one year to the next. The chart shows the maximum monthly payout for retirees at different claim ages in 2025.
|
Claim Age |
Maximum Social Security Benefit |
|---|---|
|
62 |
$2,831 |
|
65 |
$3,374 |
|
66 |
$3,795 |
|
67 |
$4,043 |
|
70 |
$5,108 |
Data source: Social Security Administration. Table by author.
Importantly, very few retired workers will qualify for the maximum Social Security benefit. Doing so requires income above the maximum taxable earnings limit for at least 35 years. Less than 10% of workers satisfy that requirement in any given year, which means an even smaller portion of the population satisfies that requirement for 35 years.
However, retired workers can still learn an important lesson from the chart. Delaying Social Security until age 70 (the latest sensible claim age) results in a much larger benefit than claiming Social Security at age 62 (the earliest possible claim age).
3. Social Security's retirement earnings test amounts will increase in 2025
Qualified workers are entitled to retirement benefits at age 62. But anyone who collects Social Security before full retirement age (FRA) will have a portion of their benefits withheld if their income exceeds certain limits known as the retirement earnings test (RET) amounts.
There are two RET limits: In 2025, the lower amount of $23,400 applies to anyone below FRA for the entire year, such that $1 in benefits will be withheld for every $2 in earnings above the limit. And the higher amount of $62,160 applies to anyone that will reach FRA during the year, such that $1 in benefits will be withheld for every $3 in earnings above the limit.
Importantly, the benefit reduction is temporary. The RET amounts no longer apply once a Social Security recipient reaches FRA. Additionally, any earnings withheld prior to FRA will gradually be repaid, so that beneficiaries recoup most or all of the money over the course of a normal lifespan.
