2025 will bring changes to Social Security. And it's not because of the upcoming presidential election or because Congress has passed any new laws. These changes have been in the works for a long time; they're built into Social Security's rules. And those who aren't expecting them -- current and future retirees -- could be caught off guard.
You don't want a financial shock when the calendar rolls over to 2025, so start preparing now, because you have less than five months until these changes go into effect and impact the money you have coming in.
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1. A benefits adjustment is coming, but it may fall short of expectations
The first change to prepare for sounds on the surface like a good one.
Retirees should get ready for the 2025 cost-of-living adjustment, better known as their Social Security raise. (Based on a year-over-year comparison of prices, the COLA has been 0% in three years since 1975 , but it is never a decrease.) This doesn't mean you should prepare to have lots of extra cash to spend, though. Seniors must brace themselves for an increase that's likely to be smaller than expected, and also keep in mind that rising prices can eat the value of any increase.
Retirees have gotten nominally big percentage raises recently. In 2022, they got a 5.9% benefits bump, and in 2023 they saw their checks increase by a whopping 8.7% as inflation drove up costs. Even this year's 3.2% raise was fairly generous by historical standards. For 2025, however, The Senior Citizens League is currently projecting just a 2.63% raise. The government will announced the amount of the COLA in October.
With many seniors already struggling with high inflation, a smaller-than-expected raise will likely be a big disappointment. Retirees might want to start preparing for this now by looking into cutting their spending or even picking up some part-time work.
2. The age to secure full benefits is changing
Those on the cusp of retirement also have something to prepare for: The age when people can claim their full Social Security benefit won't be the same in 2025.
Those who turn 66 this year have a full retirement age of 66 years and 8 months. They could start payments at that age and get their full standard benefit. For anyone who hasn't turned 66 yet, though, next year will usher in a change that means they must wait longer to claim full benefits. Full retirement age has been gradually moving later since Social Security reforms in 1983 and that will happen again next year.
Those who turn 66 in 2025, i.e., those born in 1959, will need to wait until they are 66 and 10 months old to start their payments to avoid a benefits reduction due to early filing penalties. And anyone who won't hit 66 until 2026 or later will need to wait until age 67 to claim their full benefit.
If you are counting down the days to retirement and you don't want to shrink your Social Security benefit, take note of this change now so you can plan for the right date to give notice. You might not want to tell your company you're retiring only to have to wait an extra two months to start your Social Security payments to avoid a lifetime reduction in your monthly Social Security checks.
3. Some workers are going to pay more in Social Security taxes
Even some current workers are going to have to cope with a change to Social Security next year. The change will affect high earners who are going to be taxed on more of the money they earn.
Social Security has a wage base limit. Workers pay taxes on income until they hit that limit. In 2024, it's $168,600. Since the limit is adjusted upward due to inflation, it's going to increase next year. Based on current projections, the maximum income subject to Social Security tax is likely to increase to around $174,900 or $175,500 in 2025.
If these projections are accurate, anyone earning above $168,600 will find themselves paying Social Security tax on as much as $6,900 more of their income. That's less money coming home in each paycheck, so it's time to start getting ready for this financial hit. For 2024, employees pay a 6.2% Social Security tax, so that would be about $430 on $6,900. Self-employed people pay 12.4%.
The good news is, while you have less than five months to get ready for these changes, you still have some time -- so start planning for these new Social Security realities now so you're not caught off guard in 2025.
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