The Social Security Administration (SSA) makes changes to various aspects of its benefits programs every year.
The changes for 2025 mostly involve adjustments to benefit amounts and other numbers to account for inflation and increases in the cost of living. While the changes seem minor, it is important for retirees and employers to take note of the SSA’s changes.
Cost of Living Adjustment
The SSA and many other government agencies make annual cost-of-living adjustments (COLA) to account for inflation and other factors that can increase living expenses. The SSA’s COLA for 2025 is smaller than the prior year due to tempering inflation rates.
The COLA for 2025 is 2.5%. This adjustment is slightly lower compared to the 2024 COLA of 3.2%. The SSA reviewed the Consumer Price Index (CPI) during the one year from the third quarter of 2023 through the third quarter of 2024 to determine the 2025 COLA. This will apply to many types of benefits, including:
- Retirement benefits;
- Benefits for widows and widowers; and
- Disabled worker benefits.
A person who receives $1,900 per month ($22,800 per year) in benefits should see this increase to $1,947.50 per month ($23,370 per year).
It is important to note that while the SSA bases adjustments on the CPI, private economic actors — landlords, supermarkets and so on — are not so bound, meaning they are unlikely to lower prices for their goods or services. This can end up leaving retirees and other beneficiaries struggling to make ends meet.
Full Retirement Age
The age at which people who have paid enough into the Social Security system may start receiving their full benefits is known as the full retirement age (FRA), or the normal retirement age. The specific age is in the process of changing for people born between 1955 and 1960.
People born between 1943 and 1954 reached FRA at 66. The FRA goes up by two months each year for 1955 to 1960. People born in 1959 will turn 66 in 2025, and their FRA is 66 years and 10 months. The FRA will increase to 67 for individuals born in 1960, which pushes their FRAs to 2027.
People may still choose to take early retirement once they turn 62, although this reduces the amount of benefits they will receive. The reduction in benefit amount depends on how many months remain before a person’s FRA date when they retire:
- Benefits decrease by 5/9 of 1% per month, up to 36 months
- If retiring more than 36 months before FRA, each additional month results in a reduction of 5/12 of 1%
If a person retires at the age of 62 in 2025, the total reduction in their benefits would be 30%. This amount consists of the following:
- A 20% reduction for the first 36 months until FRA; and
- An additional 10% reduction for the remaining 24 months until FRA
|
Year of Birth |
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 |
Taxes and Credits
The combined tax rate for Social Security and Medicare will remain at 7.65% for 2025. This means the portion of one’s wages deducted for Social Security (OASDI) will not change in 2025, nor will the amount employers must pay to match their employees’ contributions. Each OASDI amount will be 6.2% of employee compensation, up to the applicable taxable amount.
The wage cap for Social Security, also known as the maximum taxable earnings amount, increased in 2025 to account for inflation. In 2024, people paid Social Security tax on the first $168,600 they earned, while in 2025 the amount increased to $176,100.
A person earns one credit for every calendar quarter in which they earn and pay Social Security tax on a minimum amount of compensation. This minimum amount is also indexed to inflation. The minimum amount one must earn per quarter to accrue credits has increased to $1,810 in 2025, up from $1,730 in 2024.
Key Takeaway
There are some pertinent steps to take as you approach retirement, and Social Security can be a difficult process to navigate. Our team at LGT Financial Advisors is more than happy to help you decide the best path forward for all-things retirement.
To learn more about navigating Social Security, contact one of our trusted advisors.
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