As 2024 moves past its half way point, retirees and future recipients of Social Security are bracing themselves for drastic changes come 2025. While the program is still an indispensable security blanket for millions of Americans, significant changes in retirement planning and expectations lie ahead. The article discusses key changes on the horizon and their probable effect on Social Security recipients.
Lowered Cost-of-Living Adjustments (COLA)
Probably the most noted change coming in 2025 will be a reduced COLA for beneficiaries of Social Security. COLAs are inflation-based; however, the 2025 number is projected to be about 2.7 percent, much lower than the 8.7 percent seen recently and 3.2 percent in 2024. In any case, this adjustment reflects moderating inflation rates but also points out a running controversy—that the current COLA computation does not adequately represent the spending patterns of retirees.
Increase in Full Retirement Age
Another major change hitting in 2025 is the continued increase in the full retirement age for Social Security benefits. Someone turning 66 years old this year, in 2025, will have an FRA of 66 years and 10 months, moving up from 66 years and 8 months as in 2024. In 2026, it will be 67 for people born in 1960 or later. It means individuals either must delay filing benefits to avoid early filing penalties or accept a permanent reduction in their monthly payments if they choose to retire earlier.
Higher payroll taxes for high earners
As the maximum taxable earnings cap continues to increase based on the National Average Wage Index, payroll tax payments will further gouge high earners in 2025. For 2024, it will remain Social Security’s 12.4 percent payroll tax on all earned income from $0.01 to $168,600. The cap is expected to increase, which means people earning above the threshold may be paying more in taxes.
Possible issues with qualification to get benefits
Workers must have 40 lifetime work credits to be eligible for Social Security, with a maximum of four earned per year. In 2025, that income threshold to earn those credits could rise slightly, making it a bit harder for some people to receive benefits.
Meaning for retirement planning
It will overimplement the change of strategy for retirement planning among retirees and near-retirees. With a reduced COLA and an increased FRA, workers will either need to save more, retire late, or find other sources of income to be comfortable in retirement.
Employers and financial advisors will be instrumental in guiding workers through these changes. Education and advice about Social Security claiming strategies, retirement savings options, and investment choices will become more critical than ever in creating a financially secure retirement.
Ongoing debates and proposals
With the Social Security system mired in long-term funding issues, legislative reform arguments persist over ways to ensure its solvency. Several suggestions mentioned include increasing the age of retirement, benefit means-testing, and increasing payroll taxes; each of these will need bipartisan cooperation within Congress.
