As the U.S. population ages and life expectancies continue to increase, Social Security policymakers and experts are considering various adjustments and updates to the program to help lengthen its long-term sustainability. Three significant discussions are underway that may impact Social Security retirement benefits starting in 2025.
Using a different index to determine COLA
Another proposed change concerns calculating cost-of-living adjustments (COLA) for Social Security retirement benefits. Some policymakers have suggested using a different index, such as the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), to accurately reflect changes in the cost of living. This adjustment could result in a lower annual increase in benefits but may help improve the accuracy of future COLAs.
The COLA may be 2.6% in 2025, down from 3.2% in 20241. A COLA of 2.9% would increase the average Social Security retirement benefit by $54 a month, starting in January 2025.
Revising the eligible and normal retirement ages
One proposed change garnering significant attention is adjusting the full retirement age. Some proposals recommend a further increase to age 68 or even 70. Proponents of this change argue that it would better align benefits with longer life expectancies and reduce the financial strain on the Social Security system.
Starting in 2025, the normal retirement age (NRA) and the earliest eligibility age (EEA) for those age 62 will increase by three months per year.2 The EEA will reach 64 in 2032, and the NRA will reach 69 in 2032.
Reforming the Social Security payroll tax
Additionally, there have been discussions about potential tax reforms to address Social Security’s funding challenges. Proposals include increasing the payroll tax rate, subjecting higher income levels to the payroll tax, or implementing a new tax on investment income. These changes aim to help improve the revenue flowing into the Social Security trust funds and help ensure the program’s continuation for future generations.
Any proposed changes to Social Security will likely have significant implications for current and future beneficiaries and workers who are still contributing to the system. As such, policymakers must carefully consider the potential impacts to pursue fair and equitable adjustments.
In conclusion, the proposed 2025 changes to Social Security reflect the ongoing efforts to address the program’s long-term financial sustainability. While these proposals work toward Social Security continuing to support retirees and individuals with disabilities, they also spark essential discussions about the path forward for this critical social safety net.
Work With A Professional
It is vital to work with a professional to navigate these changes and keep your financial goals on track. The experts at Trajan Wealth are well-versed in the changing landscape of Social Security and can confidently structure a financial plan with you.
Sources:
- AARP.org
- SSA.gov – Long range solvency provisions
