(October 10, 2024) Social Security and Supplemental Security Income (SSI) benefits for more than 72 million Americans will increase by 2.5% in 2025, the lowest annual cost-of-living (COLA) adjustment in four years, the Social Security Administration (SSA) announced today. On average, Social Security retirement benefits will increase by about $50 per month starting in January 2025.

The average retirement benefit will increase to $1,976 per month in 2025, up from $1,927 this year. The average retirement benefit for households where both elderly spouses receive Social Security benefits will increase to $3,089 per month in 2025, up from $3,014 this year, SSA said.

Social Security will begin notifying people about their new benefit amount by mail starting in early December. Individuals who have set up a personal my Social Security account by November 20, 2024, can view their 2025 COLA notice online even sooner. To get started, visit www.ssa.gov/myaccount. 

Previously, SSA announced that customers who created an online account before September 18, 2021, will be required to transition to a Login.gov account to continue access to their online services. Just follow the prompts on the website. Once your  account is successfully linked, a confirmation screen will appear, and you will have immediate access to your personal my Social Security services. Existing Login.gov or ID.me account holders do not need to create a new account or take any action.

The maximum retirement benefit for individuals with lifelong maximum earnings who claim Social Security benefits at their full retirement age will be $4,018 per month in 2025, up from $3,822 this year. Depending on their birth month, that will include people born in 1958, whose full retirement age is 66 and 8 months, and people born in 1959, whose full retirement age is 66 and 10 months. The full retirement age is gradually increasing in two month increments from 66, for those people born from 1946 through 1954, to 67 for people born in 1960 and later.

Individuals who postpone claiming Social Security beyond their full retirement age earn an extra 8% per year (0.66% per month) for every year they delay collecting benefits up to age 70, when delayed retirement credits end. The delayed retirement credits are in addition to the maximum retirement benefit amount that can be collected at full retirement age.

By law, the annual inflation adjustment in Social Security benefits is based on the average inflation during July, August and September of the current year as measured by the Consumer Price Index for Urban Wage Earners. The Bureau of Labor Statistics averages the CPI-W for those three months of this year and compares it to the same period from the previous year. The percentage difference between the two COLAs determines the benefit increase for the following year.

The 2.5% COLA for 2025 follows a 3.2% increase in 2024, a whopping 8.7% increase in 2023, and a 5.9% increase in 2022. The 2.5% increase for 2025 is the smallest COLA since the 1.3% increase in 2021 and is in line with the average increase of 2.6% over the past 20 years.

Individuals who claim Social Security benefits before their full retirement age and who continue earn money from wages or self-employment will be able to earn more money in 2025 before forfeiting any Social Security benefits to annual earnings limitations.

In 2025, individuals who are under full retirement age for the entire year will be able to up to $23,400 ($1,950 per month) and still collect full Social Security benefits. Individuals who collect Social Security benefits and earn more than that in 2025 will forfeit $1 in benefits for every $2 earned over $23,400. The 2024 earnings limit is $22,320.

In the year an individual reaches full retirement age, in the months leading up to that milestone, they can earn more money without forfeiting any benefits. In 2025, the new earnings limit will be $62,160 per year ($5,180 per month), up from $59,520 in 2024. If their earnings exceed that limit, they would forfeit $1 in Social Security benefits for every $3 earned over that limit. 

Earnings restrictions disappear at full retirement age and any benefits lost due to excess earnings are restored in the form of larger monthly benefits going forward.

Social Security is funded primarily by a payroll tax of 12.4% on wages with both employers and employees paying 6.2% of gross wages up to the taxable maximum amount. Self-employed workers pay both portions of the payroll tax for a total rate of 12.4%.

Higher-income workers will pay more in payroll taxes next year as the maximum wages subject to FICA taxes will increase to $176,100 in 2025, up from $168,600 year. The additional $7,500 of taxable wages in 2025 could boost payroll taxes by an additional $465 for high-income wage earnings and by an additional $930 for self-employed next year.

Workers who earn more than the maximum taxable amount do not pay Social Security taxes on the excess earnings. However, all earnings—even those above the Social Security taxable maximum amount—are subject to a 1.45% Medicare payroll tax.