What changes are coming to Social Security in 2025?

Summary 

What is Social Security? 

Social Security is a federal program designed to provide financial support to people who are retired, disabled, or the families of those who have passed away. It’s funded mainly through payroll taxes from both workers and employers.  

This program aims to offer a safety net, helping people maintain financial stability when they can no longer work.  

In short, it ensures that Americans have a steady income to rely on when they retire and when they face challenging situations. 

What is the current state of Social Security in the US? 

As of 2024, Social Security remains a critical financial lifeline for over 68 million Americans.  

However, the program faces serious financial strain as the growing number of retirees puts pressure on its long-term viability. The trust fund is projected to be depleted by the early 2030s, potentially leading to reduced benefits unless reforms are introduced.  

As the 2024 election approaches, many are asking about Social Security changes for 2025.  

​​If Donald Trump is elected, he plans to exempt Social Security benefits from federal income taxes, which could benefit middle-income retirees.  

Meanwhile, Kamala Harris has proposed raising taxes on higher earners to support the program's solvency and ensure benefits are preserved and potentially expanded.  

What is the 2025 Social Security COLA increase? 

The Cost of Living Adjustment (COLA) is an annual Social Security change designed to help recipients keep up with inflation.  

It ensures that the purchasing power of these benefits remains steady as prices for goods and services rise.  

The 2025 Social Security COLA increase is projected to rise by 2.5%, giving Social Security recipients an average monthly increase of $48. This would bring the average monthly benefit to around $1,831—the average monthly check in July 2024 was $1,783.  

This COLA figure is slightly lower than the 3.2% adjustment seen in 2024 but falls close to the historical average of 2.6% over the past two decades. 

How is COLA calculated? 

The Social Security Administration (SSA) calculates COLA by comparing the Consumer Price Index (CPI-W) from the third quarter (July to September) of the current year to the same period of the previous year.  

If inflation has increased, Social Security benefits are adjusted by the same percentage starting the following January.  

What will the Social Security full retirement age (FRA) change in 2025? 

One of the key Social Security changes for 2025 is the shift in the full retirement age (FRA), which will affect those planning to claim benefits soon.  

FRA is the age when you can claim your full Social Security benefits without reductions. 

In 2024, the FRA is 66 and eight months.  

In 2025, it moves to 66 and 10 months.  

If you claim benefits before reaching this age, you will receive your monthly benefit at a reduced rate - 5/9 of 1% for each of the first 36 months you file early and 5/12 of 1% for additional months.  

This means those retiring in 2025 can either delay benefits to avoid penalties or claim early and accept a permanent reduction.  

Understanding this shift is crucial for making the right decision about when to file for benefits. 

How will Social Security credits & taxes be affected in 2025? 

Other Social Security changes for 2025 will include credits and taxes. To qualify for benefits, you need 40 credits earned through work.  

In 2024, you need to earn $1,730 to get one credit. This threshold will increase in 2025, though the exact amount hasn't been finalized yet. 

Additionally, the wage cap, which limits the amount of income subject to Social Security taxes, will also rise.  

The cap is $168,600 in 2024, up from $160,200 in 2023. This cap is expected to increase further in 2025, affecting higher earners by subjecting more of their income to Social Security taxes.  

These adjustments help sustain the program but will result in higher taxes for those earning above the current threshold. 

Should I be concerned about the Social Security changes in 2025? 

2025 Social Security changes will affect individuals differently.  

The higher COLA increase will benefit retirees and others who rely on Social Security for income, helping them keep pace with inflation.  

However, for those approaching retirement, the increase in the full retirement age may require rethinking retirement plans, particularly for individuals who intend to retire early. 

Due to the wage cap adjustments, higher earners will also see increased payroll taxes. Some Social Security beneficiaries may face higher taxes on their benefits if their income exceeds certain thresholds.  

It’s important to understand how these Social Security changes will affect your financial situation and plan accordingly. 

Get expert financial advice 

Staying informed about these updates and understanding their potential effects on your financial situation will help you make the best decisions for your future. Being proactive now can ensure that you’re well-prepared to navigate these changes effectively. 

Let Unbiased match you with a financial advisor for expert financial advice on how the 2025 Social Security changes might impact your long-term financial plans.