As we approach 2025, several significant changes are on the horizon for Social Security beneficiaries. From cost-of-living adjustments (COLA) to shifts in the full retirement age (FRA), these updates will impact millions of Americans who rely on Social Security as a crucial part of their retirement income. Understanding these changes is essential for retirees and those nearing retirement to ensure their financial plans remain on track.
Cost-of-Living Adjustment (COLA) for 2025
One of the most anticipated updates to Social Security each year is the cost-of-living adjustment (COLA). This adjustment is intended to keep benefits in line with inflation, helping retirees maintain their purchasing power despite rising prices.
For 2025, however, retirees are likely to receive a smaller COLA than in recent years. After historically high adjustments in 2022 and 2023—8.7% and 3.2%, respectively—due to surging inflation, the rate of increase is expected to moderate as inflation cools. While the exact percentage will be determined by the inflation data from the third quarter of 2024, early estimates suggest that the 2025 COLA could be around 2-3%. This smaller increase could surprise retirees who have grown accustomed to more substantial adjustments recently.
Higher Full Retirement Age for 2025
Another critical change coming in 2025 is a further increase in the full retirement age (FRA). The full retirement age is the point at which retirees can claim 100% of their Social Security benefits. For those born in 1959, who are turning 66 in 2025, the FRA will be 66 years and 10 months. Comparatively, those who turned 66 in 2024 reached FRA at 66 and eight months. For those who turn 66 in 2026 and beyond, FRA will be even later, at 67 years old. This means future retirees need to carefully consider their retirement timing, as claiming benefits before reaching the full retirement age results in a permanent reduction in monthly payments.
Planning Ahead for Future Changes
The adjustments in 2025 signal an ongoing trend that retirees and those nearing retirement should be aware of. Not only is the FRA gradually increasing, but future COLA increases are also expected to be modest.
Given these changes, retirees should plan for a scenario in which their Social Security benefits do not keep pace with inflation as strongly as they might have hoped. This is especially important in an economic environment where healthcare costs and other living expenses can rise rapidly. Financial advisors often recommend that retirees consider diversifying their income sources and not relying solely on Social Security for their retirement needs.
The Social Security changes coming in 2025 may not be as dramatic as some recent adjustments, but they highlight the importance of understanding how these shifts can affect your financial future. Whether you’re approaching retirement or already receiving benefits, staying on top of these changes can help you make informed decisions and better prepare for the years ahead.
