Social Security Will Undergo 3 Changes In 2025. How Will It Affect Retirees?

For many Americans, Social Security is an often stressful subject. Living paycheck to paycheck biweekly can be tough enough during prime working years, but worrying over making modest (or meager) monthly paychecks stretch can reach new levels in retirement. Frustration with sometimes complicated eligibility rules for Social Security, plus a lingering fear that benefits will be delayed, reduced, or cut completely in a retiree's lifetime (or for the younger generations, before someone even gets the chance to retire), and Social Security can feel anything but secure.

This said, upcoming changes to Social Security in 2025 will set some anxieties at ease, and likely stoke some others. While the future of Social Security hasn't exactly been certain, the Social Security Administration advised in a May 2024 press release that all benefits via Social Security Trust Funds are forecasted to be on track at least through 2035. This is good news for current retirees and those on the cusp of retirement. However, this Social Security holds little comfort for Gen Xers reaching retirement age in the years just following the current projected run-out date.

Financial press, analysts, advocacy groups, and policy think tanks have been speculating on the future of Social Security for some time. The Social Security Administration is expected to announce final updates to 2025 changes in October 2024. In the meantime, here are three changes for present and future retirees to prepare for.

Full retirement age, or the age a retiree is eligible for full, unreduced Social Security benefits, will change in 2025. In fact, this age changes a little bit every year. In 2025, the full retirement age will sit at 66 years and 10 months old. Taking full retirement benefits before this age — including at the earliest collecting age of 62 — can result in reduced benefits. Delaying full benefits until age 70 can increase the benefit amount by up to 8%, depending on the year you were born. Your birth year also determines when full retirement age begins for you. (Solve this small birthday math headache by checking out the Social Security Administration's age chart.)

Other changes in 2025 include the minimum amount of Social Security credits that an individual must earn in order to start receiving benefits, as well as the tax cap high earners must pay on their Social Security benefits. Social Security's trust funds are filled by the income taxes that workers pay throughout their working lives. A certain amount of income is considered a single credit. Workers must earn 40 credits before they can be eligible for benefits, with a cap of four credits annually. In 2023, $1,640 of earnings equaled one credit. In 2024, that amount rose to $1,730, and in 2025, it's likely to rise again.

Have you ever received $5 from a well-meaning older relative who tells you to go buy yourself something nice? Perhaps you've gotten a meager raise from an employer, who treats your additional pay like gold bars, rather than pennies on the dollar. Such is the case with another big change for Social Security in 2025: a fairly small cost-of-living increase.

The projected cost-of-living increase, or COLA, for 2025 is no great shakes. Estimates for 2025's COLA rate are 2.5%, much lower than 2024's COLA increase of 3.4% and 2023's COLA increase of 8.7%. So what's the reason for these decreasing increases? Is life projected to get less expensive in 2025?

In short ... yes. COLA increases for Social Security benefits are based on inflation costs. Third- quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) gives the Social Security Administration a picture of the actual cost of daily living, and it uses a very specific formula outlined in the Social Security Act to determine an up-to-date COLA percentage.

If this increase seems brutally low for 2025, it is. Inflation may be down, but the price of groceries has yet to get the memo. If the projected 2.5% COLA rate stands, it will be the lowest increase since 2021. This may leave retirees wondering if they can actually afford the price of cola, let alone the price of goods and services they actually need to survive.