Over 51 million retired workers received Social Security checks in August 2024, with nearly 90% depending on these monthly benefits to meet their living expenses, according to Gallup. However, many beneficiaries lack essential knowledge about the program, which can lead to financial errors and diminished spending power during retirement. Staying informed about Social Security is crucial, especially with three significant changes set to take effect in January 2025.
1. Cost-of-Living Adjustment (COLA) in 2025
To protect benefits from inflation, Social Security adjusts payments annually based on the Consumer Price Index for urban wage earners and clerical workers (CPI-W). The 2025 COLA is particularly vital, as inflation has been a top financial concern for Americans for the past three years.
The COLA amount for 2025 will be determined by the percentage increase in the CPI-W during the third quarter of 2024 (July to September). The Bureau of Labor Statistics will release September CPI-W data on October 10, 2024, at 8:30 AM ET. Following this, the Social Security Administration will publish an official announcement regarding the COLA. Beneficiaries will also receive a notice by mail in December detailing their updated payment amounts for the upcoming year.
Currently, The Senior Citizens League (TSCL) estimates a 2.5% increase in benefits for 2025. This projection can help beneficiaries estimate their additional income for the coming year. The following table illustrates the expected impact of a 2.5% COLA on average monthly payouts for various beneficiaries:
| Beneficiary Type | Average Monthly Benefit (Before COLA) | Average Monthly Benefit (After COLA) | Additional Monthly Income |
|---|---|---|---|
| Retired workers | $1,920 | $1,968 | $48 |
| Spouses | $910 | $933 | $23 |
| Survivors | $1,509 | $1,547 | $38 |
| Disabled workers | $1,540 | $1,578 | $38 |
Data source: Social Security Administration, The Senior Citizens League. Payments rounded to the nearest dollar.
2. Increase in Full Retirement Age (FRA)
Another significant change in 2025 is the increase in Social Security’s Full Retirement Age (FRA). FRA is the age at which retirees can receive their full benefit amount, known as their Primary Insurance Amount (PIA). The specific FRA for each individual depends on their birth year:
| Birth Year | Full Retirement Age (FRA) |
|---|---|
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 |
Data source: Social Security Administration.
In 2025, workers born in the last eight months of 1958 will reach FRA at 66 and 8 months during the first half of the year, while those born in the first two months of 1959 will reach FRA at 66 and 10 months during the last two months of the year.
It’s important to note that while workers can start claiming benefits at age 62, claiming early results in a reduced benefit. Conversely, those who wait until FRA or later can receive an increased benefit.
3. Changes to Retirement Earnings Test (RET) Limits
Starting in 2025, certain retired workers under FRA will see some of their benefits withheld if their earnings exceed specific thresholds, known as the Retirement Earnings Test (RET) limits. There are two limits to be aware of:
- Lower limit: For workers who will not reach FRA in the current year.
- Upper limit: For those who will reach FRA in the current year.
The withholding structure is as follows:
- Recipients under FRA for the entire year will have $1 in benefits withheld for every $2 earned above the lower limit.
- Recipients reaching FRA during the year will have $1 withheld for every $3 earned above the upper limit.
The official RET limits for 2025 will be announced alongside the COLA. However, estimates suggest the lower limit may increase to $23,280 (up from $22,320) and the upper limit to $61,800 (up from $59,520).
Once a recipient reaches FRA, these limits no longer apply, allowing them to earn any income without having benefits withheld. Additionally, any withheld benefits are typically recouped after reaching FRA.
Unlocking Additional Social Security Benefits
Many retirees may be unaware of little-known “Social Security secrets” that could significantly enhance their retirement income. For example, utilizing specific strategies could lead to an additional $22,924 per year in benefits. Learning how to maximize Social Security benefits can help individuals retire with greater confidence and financial security. For more information on these strategies, click here to explore further.
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