THE Social Security Program is subject to revision each year to take into account changes in wages and prices across the economy. Social benefits are often the main source of income for retired workers. Understanding the changes could therefore mean the difference between prudent financial planning and costly mistakes.

Most readers probably know that Social Security payments are annual. cost of living adjustments (COLA) designed to protect the purchasing power of benefits against inflation. For example, beneficiaries will receive a 2.5% COLA in 2025, but there will be other significant changes to Social Security next year.

Read on to find out more.

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1. Social Security full retirement age (FRA) increases in 2025

Social security full retirement age (FRA) is the claim age at which benefits granted to a retired worker are equal to primary insurance amount (PIA), which is another term for basic benefits. When a worker reaches FRA depends on their date of birth, as shown in the table below.

Data source: Social Security Administration.

As noted above, two groups of beneficiaries reached the FRA in 2024: (1) workers born in the second half of 1957 reached the FRA at age 66 and 6 months between January and June 2024, and ( 2) workers born in the first four months of 2024. 1958 reached FRA at the age of 66 and 8 months between September and December 2024.

FRA will increase in 2025, such that (1) workers born in the last eight months of 1958 will reach FRA at age 66 years and 8 months between January and August 2025, and (2) workers born in the first two months of 1959 will reach FRA at 66 years and 10 months between November and December 2025.

Why it’s important: Claiming age is a major determinant of Social Security payments. Workers who claim Social Security before the FRA get a reduced benefitso their payment will be less than 100% of their PIA. But workers who claim Social Security after the FRA receive a increased profitso their payment will be greater than 100% of their PIA.

2. The maximum benefit for Social Security retirees increases in 2025

Social Security retiree benefits are based on lifetime income and age of claim. Specifically, payments increase gradually as income and age of claim increase. But the benefits formula is adjusted each year to take into account changes in the average salary.

Generally speaking, wages increase over time, so the maximum Social Security benefit also increases. The chart below shows the maximum Social Security benefit for retired workers at different claiming ages in 2025.

Data source: Social Security Administration.

Why it’s important: Very few workers earn enough to qualify for the maximum Social Security benefit. This requires income above taxable earnings limit for 35 years, and less than 7% of workers meet this requirement in any given year. But the chart still teaches an important lesson: Starting Social Security at age 70 (the latest reasonable claiming age) results in a much larger payout than starting at 62 (the earliest possible claiming age).

3. Social Security retirement income test (RET) amounts increase in 2025

Workers who claim Social Security before the FRA will have some benefits temporarily suspended if their income exceeds certain limits known as retirement income test (RET). There are two thresholds, and the updated amounts for 2025 are shown below:

• The lower limit is $23,400: This means that workers younger than FRA for the entire year will be denied $1 in benefits for every $2 of income above the lower RET limit.
• The upper limit is $62,160: This means that workers who reach FRA during the year will have $1 of benefits taken away for every $3 of income above the high RET limit.

It is important to note that RET limits no longer matter once a worker reaches FRA. At this point, benefits will not be withheld, regardless of income. Additionally, any previously withheld benefits are gradually repaid once a worker reaches FRA, so that they recover most or all of their Social Security over the course of a typical lifetime.

Why it’s important: RET limits are adjusted each year based on the average wage level, so early claimants (i.e., workers who receive Social Security before FRA) can generally earn some additional income before that the benefits are withheld. For example, compared to the RET limits in 2024, the lower limit will increase by $1,080 and the upper limit will increase by $2,640 in 2025.