By December 2025, major changes will be made to Social Security rules. These include a cost-of-living adjustment (COLA) of 2.5 percent, increases in the arbitrary earnings test limits, and revisions to the full retirement age (FRA) and taxable earnings criteria.
All these modifications would be important information for current beneficiaries and those planning for retirement. In detail, here are the changes outlined and how they might affect your benefits.
Key Changes That Come Into Effect in the Work Rules for Social Security Recipients
Full Retirement Age Changes
For those born in 1959, the FRA-the age from which you will claim full Social Security benefits- will change to 66 years and 10 months. The gradual transition engages an FRA of 67 for persons born in 1960 or after.
Example: If you were born in January 1959, your FRA becomes in November 2025.
Pro Tip: If you hold off on your Social Security benefits beyond the FRA, up to 70, this will increase your monthly payments by an additional 8% for every year you wait. This delay will, thus, help in coordinating with other forms of income to maximize your overall retirement strategy.
Earnings Test Limits
If you work while receiving Social Security benefits and have not yet reached full retirement age, he Social Security benefits may be reduced temporarily if your earnings exceed specified thresholds:
- Below FRA: Earning $23,400 (from the previous $22,320 limits signifying 2024) is safe. Exceed the limit; A $1 penalty shall apply for every $2/
- The year of FRA: The limit is $62,160 and $1 for every $3 will get deducted for each dollar earned exceeding this cap.
- Handy Tip: The limits stop applying once one reaches FRA, and any withheld benefits will be re-calculated from then on, to ensure that you receive the amounts owed one day.
- Example: You are a 63-year-old with earnings of $30,000. Therefore, your earnings exceeding the $23,400 limit by $6,600 result in withholding $3,300 from your benefits for the year.
Increasing the Maximum Taxable Earnings
In short, the highest taxable earnings subject to Social Security taxes would go up to $176,100 in 2025 (from $168,600 in 2024) for higher-income earners.
Effect: This means higher contributions but also higher future benefits. Social Security benefits are based on the highest 35 years of earnings, so contributions at this level would lift your final payout. Also., this adjustment helps sustain the long-term solvency of the Social Security Trust Fund.
Adjustments for Social Security Work Credits
To qualify for Social Security benefits, you must earn work credits based on annual income. Starting in 2025, the value of one credit increases to $1,810 from $1,730. To gain the maximum four credits in a year, you need to earn at least $7,240.
Did you know? Work credits build up in your working lifetime, qualifying you for retirement, disability, and survivor benefits. Most workers must have a lifetime total of 40 credits to qualify for unrestricted benefits.
Practical Tip: Part-timers and self-employed people should keep track of earnings to ensure they earn credits every year.
How These Changes Affect You
For Retirees
- The increase in COLA offsets the eroding purchasing power adversely affected by inflation.
- Those who anticipate working and collecting benefits must keep earnings test limits in consideration to avoid temporary reductions.
- Excess amount withholding due to earnings will be readjusted for every amount owed upon reaching FRA.
For Pre-Retirees
- Any adjustments to retirement planning may need to be activated due to the increase in FRA.
- Delaying benefits until a later date, preferably to or past the FRA, will ensure the maximization of monthly amounts.
- Coordinating these benefits with pensions and personal savings is key to a well-secured retirement planning strategy.
For High Earners
- Withholding of any excess earnings above the limit will be increased.
- Consider pursuing strategies, such as deferred compensation plans, to yield additional benefits.
Frequently Asked Questions (FAQs)
What is the COLA for 2025?
COLA for the year 2025 is set at 2.5% for which an average monthly benefit would increase by approximately $49 (from $1,927 to $1,976).
How do the earnings test limits work?
If you make over $23,400 in a year before reaching FRA, $1 will be withheld for each $2 earned over the limit. In the year of FRA, the limit increases to $62,160, with $1 withheld for every $3 earned above that.
How does FRA impact my benefits?
Once your FRA comes, you can take the full amount of the benefits without a reduction due to work. Benefits are reduced if received before FRA keeping monthly checks lower than FRA; conversely, earnings accrued post-FRA will enhance checks.
If I want to, can I check my Social Security benefits online?
Yes. At ssa.gov, you can create a “my Social Security” account for access to your earnings record, estimated benefits, and other important information.
What happens if I work and receive benefits?
Your benefits can be temporarily decreased if your earnings exceed the test limits. However, those amounts that were withheld will be recalculated once you reach FRA and compensated to you over time.