There will be three major changes to Social Security in 2025. This is what pensioners need to know.

More than 51 million retired workers received a Social Security check in August 2024, and most rely on these monthly benefits to make ends meet. In fact, according to Gallup, nearly 90% of retirees view Social Security as an important source of income.

Gaps in Social Security knowledge can lead to financial mistakes and a loss of purchasing power in retirement. Therefore, beneficiaries need to stay informed about changes to the program. Read on to learn about three big Social Security changes taking effect in January 2025.

Image source: Getty Images.

1. Social Security benefits will receive a cost of living adjustment (COLA) in 2025.

Social Security benefits are protected from inflation through cost of living adjustments (COLAs). These are annual wage increases tied to a subset of the Consumer Price Index, known as CPI-W. The 2025 COLA is particularly important because Americans have listed inflation as their top financial concern for three years in a row, according to Gallup.

The COLA applied to benefits in 2025 depends on the percentage increase in the CPI-W in the third quarter of 2024, the three months between July and September. The Bureau of Labor Statistics will release September CPI-W data on October 10 at 8:30 a.m. ET. Shortly thereafter, the Social Security Administration will issue a press release detailing the official 2025 COLA (available at this link).

This link currently contains details of the 2024 COLA, but should be updated sometime on October 10 to reflect the 2025 COLA. In addition, Social Security recipients will receive a COLA notice in the mail in December explaining their updated 2025 payment amount. They can also access the information in the message center of their My Social Security account.

Meanwhile, the Senior Citizens League (TSCL) estimates that benefits will increase by 2.5% in 2025. Social Security recipients can use this number to estimate how much additional income they will receive next year. The chart below shows how a 2.5% COLA would impact the average monthly payout for various beneficiaries.

Data source: Social Security Administration, The Senior Citizens League. Payments were rounded to the nearest dollar.

2. The full Social Security retirement age will be raised in 2025

Social Security’s full retirement age (FRA) will be raised next year. FRA is the eligibility age at which the benefit paid to a retired employee equals his or her primary insurance amount (PIA). When an employee reaches FRA depends entirely on their year of birth, as shown in the table below.

Data source: Social Security Administration.

Based on the information above, two groups of workers will reach (or have already reached) FRA this year: (1) those born in the second half of 1957 reached FRA in the first half of 2024 at 66 and 6 months, and ( 2 ) those born in the first four months of 1958 will reach FRA at 66 and 8 months in the last four months of 2024.

FRA will increase in 2025 so that (1) workers born in the last eight months of 1958 will reach FRA at 66 and 8 months in the first eight months of 2025, and (2) workers who Those born in the first two months of 1959 will reach FRA at 66 and 10 months in the last two months of 2025.

So what? Workers are eligible for retirement benefits at age 62, but will not receive full payout (PIA) unless they file for Social Security through FRA. Workers who file early will receive a reduced benefit, meaning they will receive less than 100% of their PIA. Employees who apply later (up to age 70) will receive an increased benefit, meaning they will receive more than 100% of their PIA. The exact reduction or increase depends on how early or late Social Security begins.

3. Certain retired employees under the FRA will have their benefits withheld in 2025

As already mentioned, entitlement to pension benefits begins at age 62. This applies regardless of whether a person is still employed or not. But anyone who files for Social Security before FRA will have some benefits withheld if their income exceeds certain levels known as Retirement Earnings Test (RET) allowances.

There are two RET limits: a lower limit that applies to employees who do not meet the FRA in the current year and a higher limit that applies to employees who meet the FRA in the current year. How these limits affect benefit payments is explained below.

• For FRA security recipients, $1 of benefits is withheld for every $2 of earnings above the floor for the entire year.

• Social Security recipients who reach FRA during the year will have $1 in benefits withheld for every $3 in earnings above the cap.

The Social Security Administration will announce the official 2025 RET limits in the same press release as the COLA. However, Social Security trustees estimate that the floor will rise to $23,280 (from $22,320) and the ceiling will rise to $61,800 (from $59,520).

RET limits no longer apply under FRA, meaning Social Security recipients can earn any income they want without having benefits withheld. Additionally, withheld benefits do not represent a loss of income. Instead, they are added to the FRA monthly payments. Employees typically receive back most or all of their withheld benefits over the course of a typical lifetime.

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