Social Security Changes to Watch for in 2025: Key Updates for Retirees
Social Security benefits are subject to several important updates each year to keep payments in line with inflation and wages. These changes are particularly important for retired workers and others who rely on Social Security as a primary income source. In 2025, there are three major updates that beneficiaries should know about to avoid costly financial mistakes and make informed decisions.
1. Cost-of-Living Adjustment (COLA) in 2025
Social Security benefits are adjusted annually with a cost-of-living adjustment (COLA) to keep up with inflation. Without these adjustments, retirees would see their purchasing power erode over time. In 2025, beneficiaries will receive a 2.5% COLA, which translates to an additional $49 per month for the average retired worker and $23 per month for the average spouse. This increase is below the 10-year average of 2.75%, so while still helpful, the COLA may feel smaller compared to recent years, particularly after larger increases in the past three years.
2. Increase in Maximum Retired-Worker Benefit
Social Security benefits are based on lifetime earnings and the age at which a person begins claiming benefits. Each year, the maximum benefit adjusts to reflect wage increases in the broader economy. As a result, the maximum benefit for new retirees will rise in 2025. However, very few workers will qualify for the maximum benefit, which requires earning above the taxable maximum for at least 35 years. This threshold is high, with less than 10% of workers meeting the requirement each year. For those who do qualify, delaying Social Security until age 70 results in a significantly higher monthly benefit compared to claiming at age 62.
3. Higher Earnings Limits for Retirement Earnings Test (RET)
The retirement earnings test (RET) applies to those who claim Social Security before reaching their full retirement age (FRA). In 2025, the earnings limits will increase: if you are under FRA for the entire year, you can earn up to $23,400 without having any benefits withheld. Earnings above this amount will result in a reduction of benefits—$1 for every $2 earned over the limit. For individuals who reach FRA during the year, the higher limit of $62,160 applies, and benefits are reduced by $1 for every $3 earned above that threshold. Once FRA is reached, these earnings limits no longer apply, and any withheld benefits are typically repaid over time.
Bonus Tip: The $22,924 Social Security Bonus
Many retirees overlook ways to maximize their Social Security benefits. By learning how to optimize your claims, you could see an additional $22,924 in annual benefits. Understanding strategies such as delaying claims or utilizing spousal benefits could make a significant difference in your retirement income, helping you retire with greater financial confidence.
Keeping an eye on these changes and understanding how they affect your benefits can help you make the most of your Social Security payments in the years to come.