Where Social Security Stands in 2025
On August 14, 1935, President Franklin D. Roosevelt signed the Social Security Act into law, creating a groundbreaking system of social insurance for seniors, funded through payroll taxes. Five years later, in 1940, Ida M. Fuller, a retired legal secretary from Ludlow, Vermont, made history as the first person to receive a monthly old-age benefit. She was 65 when she received her first check; a modest sum of $22.54. Remarkably, Ida lived to be 100 years old, passing away in 1975—long enough to witness the enduring impact of the program she helped launch.
Social Security offers guaranteed lifetime benefits that are adjusted each year to keep up with inflation, providing a crucial financial lifeline for millions. As of December 31, 2024, nearly 9 out of 10 people aged 65 and older were receiving these benefits, which now account for about 31% of their income. Over the past 90 years, Social Security has evolved to meet the changing needs of retirees. Let’s take a closer look at where Social Security stands in 2025 and how it continues to impact lives across the nation.
Social Security Basics
When Social Security first began, the payroll deduction was just 1%, matched by employers. Over the years, that rate steadily increased, reaching 5% by 1978. However, since 1990, it has remained at 6.2%, except for a temporary reduction to 4.2% in 2011 and 2012 as part of the 2010 Tax Relief Act. In 2025, you will still pay 6.2% of your W-2 earnings up to $176,100, with your employer matching that contribution into the Old Age, Survivors, and Disability Insurance (OASDI) trust fund. If you’re self-employed, you pay the full 12.4% based on your net earnings. These payroll deductions are pooled together and used to pay benefits to current Social Security recipients, with any excess going into the Social Security trust fund. In 2025, about 69 million people will receive a monthly benefit, making Social Security a vital safety net for millions of Americans.
Social Security calculates your primary insurance amount (PIA) based on your highest 35 years of earnings. Your PIA is the amount you’ll receive at your full retirement age (FRA). For those born in 1959, FRA in 2025 is 66 years and 10 months, but if you were born in 1960 or later, it’s 67. If you’ve worked fewer than 35 years, the missing years are counted as zeros. Here’s the upside: as you work more and earn higher wages, those lower or zero years drop off your record, boosting your PIA.
To qualify for Social Security retirement benefits, you’ll need 40 “credits”—which is about 10 years of work. In 2025, you can earn one credit for every $1,810 in wages or self-employment income. To earn the maximum four credits in a year, you’d need at least $7,240 in income.
You can examine your current Social Security estimated benefits and earnings history at “my Social Security” using this link: https://www.ssa.gov/myaccount.
Social Security Fairness Act
President Biden signed into law the bipartisan Social Security Fairness Act on January 5, 2025, which abolished both the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) which reduced the Social Security benefits significantly for 3.2 million public sector workers such as teachers, nurses, police officers and other state and local government employees. The law is retroactive to January 2024.
The Windfall Elimination Provision (WEP) adjusted the Social Security benefits of individuals who receive a pension from work “not covered” by Social Security. The WEP would also impact the Social Security benefits of these workers even if they had paid into Social Security through other employment.
The Government Pension Offset (GPO) impacted the Social Security payments of spouses, widows, and widowers who receive a government pension. The GPO would reduce spousal and survivor Social Security benefits by two-thirds of the government pension.
The Social Security administration began to pay retroactive benefits earlier this year to those who qualify. Most affected beneficiaries will begin receiving their new monthly benefit amount in April of 2025. According to the Social Security website, the change in monthly benefit can vary greatly. Depending on the type of Social Security benefit received and the amount of the pension, some individuals will only see a minor bump in benefits while others may be eligible for over a $1,000 increase to their monthly Social Security benefits. If you feel you have been impacted by this new law, take action to review your Social Security benefits and reach out to the Social Security Administration. Social Security benefits are only payable retroactively for six months, so if you are affected you should act quickly!
When to File?
One of the most frequent and crucial questions we get asked is: When is the best time to file for Social Security? The answer depends on a range of factors including: your health, family history, your spouse’s benefits, other retirement income, and your overall financial picture.
If you file for Social Security at your full retirement age (FRA), you’ll receive your full primary insurance amount (PIA) as your monthly benefit. However, if you choose to delay, you can increase your benefit by 0.66% for every month you wait, which adds up to 8% per year, all the way until age 70. There’s no additional benefit for delaying past age 70, so it’s important to weigh your options carefully.
For example, if your PIA is $3,000 and you were born in 1961 with an FRA of 67, waiting until age 70 to start benefits would increase your payout by 24%, bringing your monthly benefit to $3,720 for the rest of your life—plus any cost-of-living adjustments. It’s a straightforward 8% increase per year, with no compounding. This adjusted benefit would also be the amount your spouse would receive as a survivor benefit, which we’ll dive into in more detail later.
On the flip side, if you choose to start Social Security before your FRA, your monthly benefit will be permanently reduced. For each month you file before your FRA (up to 36 months), your benefit is reduced by 5/9 of 1%. If you take it even earlier than that, the reduction increases to 5/12 of 1% per month. For someone with an FRA of 67, starting at 62 would reduce their benefit by about 30% for the rest of their life.
So, when to file is a big decision—and it’s not a one-size-fits-all answer! We’ll work with you to find the best strategy for your unique situation.
What if You Change Your Mind?
Choosing the right age to start collecting your Social Security benefits is a big decision, and it’s understandable to wonder: What if I regret my choice? The good news is you get a one-time “mulligan.” You can withdraw your application for benefits, but you must do so within the first 12 months of filing. However, you’ll need to repay any benefits you’ve already received before you can make this change.
There is another option if you decide to change your mind later on. Once you reach full retirement age, you can choose to suspend your benefits without having to repay any money you’ve already received. By pausing your benefits, you’ll continue to earn delayed retirement credits for each month your Social Security is on hold, up until age 70. This can lead to a higher monthly payment when you eventually decide to start receiving benefits again. It’s a flexible strategy that gives you room to adjust your plan as your needs and circumstances change!
Earnings Cap
Another key factor to think about is whether you plan to keep working while receiving Social Security benefits. You can work and collect Social Security, but if you start before your full retirement age, your benefits will be reduced based on how much you earn. In 2025, for every $2 you earn above $23,400, your benefits will be reduced by $1. Once you reach the year of your full retirement age, the reduction changes to $1 for every $3 you earn above $62,160.
The good news? Once you hit full retirement age, this earnings penalty disappears, no matter how much you earn. Plus, your benefits will be recalculated to account for the months you had reduced payments, potentially boosting your monthly benefit moving forward. So, if you plan to keep working, it’s important to factor in how your earnings will impact your Social Security.
Married Couple Strategies
One powerful strategy for married couples is for the higher-earning spouse to delay claiming Social Security as long as possible—ideally until age 70. This not only maximizes their lifetime benefits but also boosts the survivor benefit for the other spouse. When one spouse passes away, the surviving spouse can collect 100% of what the deceased was receiving or would have been eligible for at their full retirement age.
For example, let’s say Lindsay decides to wait until age 70 to begin collecting her Social Security benefits. Her primary insurance amount (PIA) at full retirement age (67) is $3,500, but by delaying, it grows by 8% each year, reaching $4,340 by age 70. Meanwhile, her husband Robert starts his Social Security at age 67, with a payment of $2,100. If Lindsay were to pass away first, Robert could step into her higher benefit of $4,340 instead of continuing to receive his own $2,100. The surviving spouse always gets the higher of the two benefits, which can make a huge difference over time.
Spousal Benefits
If one spouse doesn’t have enough credits or has a low PIA, they may be eligible to receive a spousal benefit worth up to 50% of the other spouse’s PIA. However, the higher-earning spouse must already be receiving Social Security benefits for the spousal benefit to apply. If the spousal benefit is taken before full retirement age, it will be reduced. Similarly, if you start your own benefits early and then add the spousal benefit once your spouse starts collecting, your benefits will still be reduced.
What if I Am Divorced?
You can receive Social Security spousal benefits from your ex-spouse as long as you were married for at least 10 years, and you have not remarried. Similar to regular spousal benefits, you can receive up to 50% of an ex-spouse’s benefit at your full retirement age, less if you claim early. One major difference from regular spousal benefits is that you can claim benefits from your ex-spouse even if they have yet to apply for benefits. If you have been married more than once, you can pick which ex-spouse’s benefits you want to claim.
You can claim survivor benefits of an ex-spouse once they have passed away. If at full retirement age, it will be worth 100% of what the ex-spouse received. If you remarry before age 60, you lose the survivor benefit. If you wait until age 60 or later to tie the knot, you are still eligible for the survivor benefit.
Cost of Living Adjustment (COLA)
Every year since 1975, Social Security uses the Consumer Price Index (CPI-W) to calculate the automatic cost-of-living adjustment (COLA). Before 1975, Congress had to enact special legislation to increase Social Security benefits. In 2025, the Cost-of-Living Allowance was 2.5%, the lowest increase since 2021 that clocked in a 1.3% increase. This is much lower than the peak inflation year of 2023 that saw an 8.7% increase, the largest since 1981. Anyone 62 or older receives the COLA increase whether they are currently collecting Social Security or have yet to start collecting payments. In that case, it is added to your future benefit.
About that Trust Fund
The Social Security Administration (SSA) released their annual trustees report in May of 2024 that projects Social Security won’t have enough money to pay all beneficiaries the amount they are due in 2035. This is a one-year improvement compared to previous estimates. At that point, if Congress doesn’t take action, beneficiaries would receive only about 80% of their benefits. Yes, an automatic cut of around 20% of Social Security benefits.
The Wall Street Journal reported analysis from the Social Security Trustee’s report that to keep Social Security solvent for the next 75 years, payroll taxes would have to be increased from the current 12.4% payroll deduction rate to 15.84% split between employee and employer. The other option was to cut benefits immediately by 21.3% to put the program on better footing without a tax increase. We continue to monitor all the news out of Washington DC and will keep you posted on any potential Social Security legislation.
Social Security Benefit Modeling
Are all these acronyms and percentages making your head spin? Not to worry, our team of professionals is here for you. We can help you explore multiple scenarios for the timing of your Social Security benefits, guiding you through this crucial decision that will affect not only your monthly payments for the rest of your life but also your potential survivor benefits. This conversation is part of a broader financial planning strategy that considers not only Social Security but also factors like Required Minimum Distributions (RMDs) from retirement accounts. By understanding the timing of these income streams, we can help you make the most of the “income valley” in retirement—a period before Social Security and RMDs kick in. During these years of lower income, we can model Roth Conversions to create a tax-free income stream for your retirement and build a lasting legacy for your heirs.
Our team is ready to walk you through a Social Security analysis to show how different filing strategies impact your retirement plan, including calculating the breakeven point for filing at various ages. We can even discuss and model scenarios with major Social Security cuts to prepare for a worst-case situation.
The ideal time to review or update your financial plan is right after filing your taxes, while all the information is already at hand. Let the Bedell Frazier team help you make the best decisions for your future. Contact us today to get started or bring current your retirement plan!
