As we approach the end of 2025, there are millions of Americans who are seeing multiple changes to Social Security. There has been benefit increases and rule changes and these adjustments are important for many retirees. Let’s dive into the changes.
Cost-of-Living Adjustment (COLA) Brings a Boost
At the start of 2025, in the January benefit payment, retirees received a 2.5% cost-of-living adjustment (COLA). This worked out to about $49 more per a month for the average retirees and this increased the monthly benefit payment to about $1,976.
For couples, the increase is even more noticeable: about $75 more per month, lifting their benefit from $3,014 to $3,089.
This increase was related to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which analyses inflation data. Even though the 2.5% COLA is meant to assist retirees keep up with inflation, whether it actually helps individuals or not, depends on their individual circumstances.
Maximum Taxable Earnings Threshold Climbs Higher
It is known that Social Security is funded through payroll taxes, but this is only up to a certain income limit. As of this year, this limit has increased.
In 2024, workers only paid Social Security tax on the first $168,600 of income. In 2025, the limit increased to $176,100. This means that those workers who are earning more income, will more taxes and this will in turn increase the maximum benefits later on in retirement.
Even though this change doesn’t affect retirees directly, it impacts workers who are still contributing to the system.
Updated Rules for Working Retirees
Many retirees choose to continue working while collecting Social Security, and this year, the earnings test limits have gone up.
- You can now earn up to $23,400 per year, or roughly $1,950 per month, before any benefits are withheld if you are under full retirement age (FRA) for the entirety of 2025. Your benefits are temporarily reduced by $1 for every $2 you make over that cap.
- If you reach FRA in 2025, the higher limit of $62,160 annually applies in the months before your birthday. In this case, $1 is withheld for every $3 you earn over the cap. Once you hit FRA, the earnings test disappears entirely.
Once you reach FRA, Social Security recalculates your payments and adds back the withheld amounts, permanently increasing your check.
Full Retirement Age
Your FRA is the age at which you qualify for 100% of your Social Security benefit. This age is slowly increasing. In 2025, the new FRA applies to people born in 1959, who will reach full retirement at 66 years and 10 months.
For anyone born in 1960 or later, FRA is set at 67 years old. If you claim benefits before reaching FRA, your monthly benefit will be permanently reduced. Should you delay claiming your benefits till age 70, your benefit will increase by approximately 8% per year.
What It All Means for Retirees
For most retirees, 2025 is bringing a mix of good news and new considerations:
- Bigger checks thanks to COLA increased.
- More flexibility for working retirees due to higher earnings limits.
- Higher taxes for workers, with the payroll wage cap rising.
- Slowly increasing the FRA
Final Thoughts
As with every other thing that is changing, so is Social Security. Even though some of these changes are slight, many of these represent a significant shift for millions of American retirees. Regardless of whether you are retired or approaching retirement, making sure that you keep up to date with these changes and verified information, will assist you in making wise decision. This will be a great help for your financial future.