Important changes are coming to Social Security in 2025. Here’s what you need to know about how the program will change next year.
With 2024 more than halfway over, it’s time for current and future retirees to start preparing for upcoming Social Security changes coming in 2025. These changes could affect when you can claim benefits and how much you’ll get.
Unfortunately, neither of these are good for seniors, so it’s important to start preparing. now That way, you won’t be surprised by a big financial hit. Here are the details on the big changes and how they might affect you.
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1. Full retirement age will be delayed
The biggest change that could affect Social Security next year is a delay in the full retirement age. This change will affect people who haven’t claimed benefits yet but plan to do so soon.
To understand why this change matters, you need to know what full retirement age is. Full retirement age is the age at which you must claim your first Social Security check if you want to receive exactly your standard benefit, not benefits reduced by the early filing penalty or increased by the delayed retirement credit for waiting to claim beyond your FRA.
The full retirement age will change in 2025. For people who turn 66 in 2024, their full retirement age will be 66 years and 8 months. However, if you don’t turn 66 until next year, your full retirement age will be 66 years and 10 months. If you don’t turn 66 until 2026 or later, your full retirement age will be even later, to 67. This change to the full retirement age is very important for retirees who are deciding when to claim benefits.
See, if you claim benefits even one month before your FRA, you’ll be hit with an early separation penalty. Must If you turn 66 next year and don’t want these penalties to reduce your monthly benefits for the rest of your life, just wait until you’re exactly 66 years and 10 months old. The reduction is 5/9 of 1% for each of the first 36 months that you received a benefit check before your FRA, and 5/12 of 1% for each month prior to that.
A change in your FRA that delays your pay date means you have two choices, neither of which are good: work a few more months to avoid an early retirement penalty, or file earlier than planned and accept a reduction in your lifetime benefits. This is a choice you need to make with full knowledge, which is why it’s so important to understand how your FRA will change.
If you’re getting ready to claim Social Security next year, start planning now because this change could affect exactly when you retire. If you’ll need to work a few more months than your coworkers who turned 66 earlier, start preparing for that reality now. Don’t be counting down the days until you’re done working only to realize too late that you haven’t adjusted based on the change in your full retirement age in 2025.
2. Cost-of-living adjustments to Social Security payments are likely to be smaller than in 2024
Retirees who are already receiving Social Security benefits will also have to adjust to another change: They will most likely receive a reduced cost-of-living adjustment (COLA) in 2025 compared to the raises they received after the pandemic.
Because the COLA is based on inflation, and preliminary data shows that inflation this year is significantly lower than in past years, seniors will almost certainly receive lower-than-expected benefit increases: Retirees are receiving a 3.2% benefit increase this year, followed by 8.7% in 2023 and 5.9% in 2022. Currently, experts predict the 2025 COLA will be just 2.7%.
Unfortunately, COLAs have long been unable to keep up with the actual rate of inflation experienced by most retirees. This is because COLAs measure changes in costs over time using a price index that tracks the spending habits of urban wage earners and office workers. Seniors don’t buy the same goods and services as this group, so their pay increases are too small, and the purchasing power of their benefits has fallen 36% since 2000.
Seniors should be aware of the significant changes to the COLA for 2025 and begin planning for smaller benefit increases and even less purchasing power next year. It may be time to consider budget cuts and other alternatives before the new year arrives and you no longer have the funds you need or expect.
Preparing for these two changes will put you in the best financial position possible, even if it means postponing Social Security payments or dealing with the fact that increased benefits could leave you further behind.
