The Social Security program undergoes several important changes every year to keep benefit payments aligned with inflation and wages. Given that benefits are often the largest source of income for Americans aged 65 and older, it is crucial that retired workers and other recipients stay informed. Doing so can help prevent costly financial mistakes.
Read on to learn about three important changes coming to Social Security in 2025.
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Annual cost-of-living adjustments (COLAs) protect the buying power of Social Security benefits by ensuring payments increase at the same pace as inflation. Without COLAs, beneficiaries would effectively receive less money with each passing year.
For instance, a subset of the Consumer Price Index known as the CPI-W rose at 2.7% annually during the 10-year period that ended in December 2023. That means a market basket of goods and services became about 30% more expensive over that decade. But Social Security increased by about the same amount, keeping the buying power of benefits more or less constant.
Next year, Social Security benefits will receive a 2.5% COLA, which equates to an additional $49 per month for the average retired worker and $23 per month for the average spouse. That falls below the 10-year average of 2.75%, so the pay increase may seem unusually small, especially because beneficiaries received much larger COLAs in the last three years.
Social Security retired-worker benefits are determined based on a person's lifetime income and claim age, such that payouts become progressively larger as income and claim age increase. The benefits formula is modified annually based on changes in the average wage, thereby ensuring Social Security payments reflect the general rise in wages that occurs over time.
Consequently, the maximum Social Security benefit for new retired workers tends to increase from one year to the next. The chart shows the maximum monthly payout for retirees at different claim ages in 2025.
Data source: Social Security Administration. Table by author.
Importantly, very few retired workers will qualify for the maximum Social Security benefit. Doing so requires income above the maximum taxable earnings limit for at least 35 years. Less than 10% of workers satisfy that requirement in any given year, which means an even smaller portion of the population satisfies that requirement for 35 years.