2 Reasons the Social Security Changes in 2025 Mean You Should Retire This Year

Social Security is on a collision course with a looming insolvency crisis that will deplete the trusts that fund it in about 10 years — but anyone currently contemplating retirement has more immediate concerns. The program faces two major adjustments in 2025 that will combine to make 2024 the right year for many aspiring retirees to claim benefits.

“Now is an excellent time to retire given upcoming changes to Social Security,” said Ryan McEachron, CEO of ISU Insurance Service ARMAC Agency in Victorville, California, where he helps retirees plan for their financial futures. “My clients who have retired in recent years are relieved to have their benefits locked in before major Social Security changes take effect. They have more confidence in their retirement planning, knowing exactly how much they will receive from Social Security each month for the rest of their lives. The peace of mind that comes from not worrying about future reductions to benefits is invaluable.”

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Here’s what’s happening with America’s biggest social safety net program in 2025 and why the changes could compel you to consider retiring before the year is out.

Also see five things you should know about the program’s future.

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The Annual Benefit Boost Will Be Smaller in 2025

Since 1975, the Social Security Administration (SSA) has calculated an annual cost of living adjustment (COLA) to ensure that benefit payments keep up with inflation. For 2022, as prices started soaring, the SSA padded monthly Social Security checks by 5.9%. For 2023, retirees got an 8.7% raise, the biggest COLA in 40 years in response to the highest inflation rate in 40 years. For this year, payments grew by just 3.2% — and the downward trend will probably continue in 2025.

“The cost of living adjustment is likely to decrease over the next few years, reducing the growth of future Social Security payments,” said McEachron, who’s also a member of the Victorville City Council and who spent six years on the Victorville Chamber of Commerce board of directors, including a stint as chairman of the board.

Experts had predicted an already paltry 2.7% COLA for 2025, but new inflation data released in August pushed the consensus projection down to just 2.63%, according to The Motley Fool.

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2.63% Is Even Less Than It Seems

The Bureau of Labor Statistics (BLS) produces the consumer price index for urban wage earners and clerical workers (CPI-W), a benchmark inflation gauge the SSA uses to calculate COLAs. Organizations like the National Active and Retired Federal Employees Association (NARFE) believe that the CPI-W understates the living costs that retirees actually experience in real life, such as increasing healthcare costs. They say the result is that COLAs don’t fully mitigate rising living costs for seniors and degrade beneficiaries’ purchasing power over time.

NARFE and other advocacy organizations have urged policymakers to switch to the consumer price index for the elderly (CPI-E), which measures inflation for those 62 and older.

Full Retirement Ages Are Getting Pushed Back

Retirees can claim Social Security as young as 62, but the SSA docks their payment for every month they retire early up to 30% of their check. They become eligible to collect their entire benefit only when they reach their full retirement age (FRA) — which is changing.

“The full retirement age is increasing for those born after 1960, meaning people will have to wait longer to receive their full benefits,” McEachron said.

According to The Motley Fool , “For those turning 66 in 2024, FRA is 66 and 8 months, as that is the FRA for anyone born in 1958. It’s moving later, with those born in 1959 and turning 66 next year forced to wait until they are 66 years and 10 months old before they get their full benefit. In 2026, FRA will increase again — anyone born in 1960 or later is going to have an FRA of 67.”

“By retiring sooner, people can lock in a higher benefit amount and avoid future reductions,” McEachron said.

That, along with a reduced COLA, has convinced McEachron that 2024 is a better year to retire than 2025 will be.

“Retiring this year provides financial security,” he said.

This article originally appeared on GOBankingRates.com : 2 Reasons the Social Security Changes in 2025 Mean You Should Retire This Year