MJP –
The Social Security program undergoes key adjustments each year to align benefits with inflation and wage growth. Since Social Security benefits are often the primary income for Americans aged 65 and older, it’s crucial for retirees and recipients to stay updated on these changes. Being informed can help avoid costly financial mistakes.
Here are three important updates coming to Social Security in 2025:
1. Social Security Benefits Will Receive a 2.5% Cost-of-Living Adjustment (COLA)
To help beneficiaries keep up with inflation, Social Security benefits are adjusted annually through a cost-of-living adjustment (COLA). This ensures that payments increase in line with the rising cost of goods and services. Without COLA increases, Social Security recipients would lose purchasing power over time.
In 2025, Social Security beneficiaries will receive a COLA of 2.5%. For the average retired worker, this will mean an additional $49 per month, and for an average spouse, $23 per month. While this COLA increase is lower than the recent years (which saw larger adjustments), it still helps to protect beneficiaries from inflationary pressures. Over the past decade, the average COLA increase was 2.75%.
2. The Maximum Retired-Worker Benefit Will Increase
Social Security benefits are calculated based on a worker’s lifetime earnings and the age at which they claim benefits. As wages generally increase each year, the benefits formula is updated to reflect these changes, causing the maximum Social Security benefit to rise as well.
However, very few people qualify for the maximum benefit, as this requires earning above the maximum taxable earnings limit for 35 years. Typically, fewer than 10% of workers meet this condition. Retirees can learn an important lesson from this: delaying Social Security benefits until age 70 (the latest advisable age to start receiving benefits) results in significantly higher monthly payments compared to claiming at age 62, the earliest possible claim age.
3. Increases in Social Security’s Retirement Earnings Test (RET) Limits
For individuals who claim Social Security benefits before reaching full retirement age (FRA), the Retirement Earnings Test (RET) applies. This means that if beneficiaries earn more than a certain amount, some of their Social Security payments will be withheld.
In 2025, the lower earnings test threshold is $23,400. If a beneficiary under FRA earns more than this, $1 in benefits will be withheld for every $2 they earn above the limit. For those who reach FRA during the year, the higher limit of $62,160 applies, and $1 in benefits will be withheld for every $3 earned over that amount.
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The good news is that this reduction is temporary. Once a beneficiary reaches FRA, the RET limits no longer apply. Additionally, any benefits withheld before reaching FRA are eventually returned, ensuring that recipients recover most, if not all, of the funds over their lifetime.
