Each year, Social Security benefits experience a number of changes that affect those receiving benefits now and those who will in the future.
Some of the factors affecting these changes to Social Security are consistent and relatively predictable, such as inflation and annual average growth of wages. Other factors are less consistent and predictable due to being subject to repeal and future change, such as legislative updates.
Whether you’ve already elected to receive your SS benefits – perhaps even many years ago – or are planning for retirement in the near future, it’s important to know where your benefits stand.
Not only might you learn some new acronyms in this article, but the information discussed empowers you to make more informed decisions as it relates to your overall retirement plan. This is especially important considering Social Security income makes up 50% or more of total income for about 40% of retirees.
Social Security Benefits Payment Increase – COLA
Every year, the Social Security Administration makes an adjustment to Social Security income benefits based off of the previous year’s inflation data. This adjustment is known as the Cost-of-Living Adjustment (COLA).
You can imagine without this adjustment how little purchasing power one’s Social Security income would have several years after electing their benefit! The value of their Social Security income would fall the same percentage as inflation rises each year. Thus, the primary purpose of this adjustment is to ensure that Social Security beneficiaries continue to receive benefits that carry relatively the same purchasing power year after year.
It’s no secret that for the last few years inflation has been well above average. I don’t need to remind you of this as no doubt you’re already reminded every time you arrive at your local grocery store’s checkout. For that reason, the Social Security Cost-of-Living Adjustment (COLA) has seen some major increases of late.
In fact, in 2021 and 2022, the respective increases of 5.9% and 8.7% were the highest since the early 1980s. Since 2022, however, the COLA has begun receding back to the norm, generally considered to be about 2%.
For 2025 Social Security benefits the Cost-of-Living Adjustment is 2.5%. This 2.5% increase in Social Security income is applicable to both those who’ve not yet received their SS income and those who’ve already elected.
A quick example: a retired couple who were already receiving their benefits and received a combined monthly payout of $3,500 in 2024, would be receiving a combined monthly payout of about $3,588 in 2025.
Relief for Some Pensioners – WEP
Beginning in 1983, a law was enacted that enabled the Social Security Administration (SSA) to reduce benefits for many people who were eligible for both SS income and a pension that came from what was considered a “non-covered’ occupation. This law was known as the Windfall Elimination Provision (WEP). Under this law, a “non-covered” job included ones where the individual wouldn’t experience FICA withholding from their paycheck and thus wouldn’t have been paying into Social Security.
Commonly, these jobs included public service government positions, such as teachers, law officers, firefighters, etc. Those who fell under this provision made up about 3.1% of Social Security benefit recipients.
As of January 6, 2025, the Social Security Fairness Act repealed the WEP, and the related Government Pension Offset (GPO). Thus, this repeal removes the reduction of benefits for those who previously fell under the WEP, and it will also retroactively pay any withheld benefits going back to January 2024.
When You’ll Receive “Full” SS Benefits – FRA
When it comes to what’s considered “retirement age,” there’s a good chance that you and the Social Security Administration will have a bit of a disagreement. For most individuals, age 62-65 feels to be the right age for them to plan on leaving the workforce and entering into their retirement years. Sure, the SSA allows you to begin receiving SS income benefits at age 62, but these are drastically reduced based on the age they consider to be right for retirement – known as Full Retirement Age (FRA).
The FRA hasn’t remained a fixed number over time but rather began seeing an increase beginning in 1983. And this number will again see an increase in the next couple of years. Therefore, it’s important for those who’ve not yet begun receiving Social Security benefits to know if they’ll be receiving their “full” benefit or a reduced amount. Which FRA applies to you depends on your year of birth and thus what year you will attain full retirement age. For those born in year 1959 and 1960, it’s as follows:
- 1959: FRA is 66 years & 10 months, which will be reached in 2025.
- 1960: FRA is 67 years, reached in 2026.
For a more in-depth discussion of how electing your Social Security benefits at different ages affects your SS income and important considerations to make before making that election, please read my previous article, Are You Leaving Money on the Table By Claiming Social Security Too Soon?.
Social Security – a Cog in a Larger Machine
As mentioned at the outset, Social Security benefits experience annual changes. Staying on top of the changes that remain fairly predictable is important so you know just how much income from this source you can rely on each year and how much you may need from other sources.
Staying on top of those that are less predictable, such as legislative updates, allows you to know of any changes which may affect your unique situation. A great example of this was the point above for the 3.1% of SS benefit recipients who previously fell under the Windfall Elimination Provision.
In any case, Social Security is a large part, if not the biggest part of retirement income for most retirees. That being so, it’s important to view Social Security income like an asset and, just like the other retirement savings you’ve been working hard to build up for years, make sure it’s going to work hard for you. This is called Social Security Optimization.
If you’d like to find out how to optimize your Social Security Benefits via a tailored retirement income plan, CLICK HERE to book a short conversation with a qualified retirement planning professional.
Let’s Have a Conversation:
Do you keep track of Social Security changes each years? How has your payment changed since you first received it? Which change to date has affected you the most?
