Social Security’s “full retirement age” (FRA) is set to rise in 2025, affecting those nearing retirement who may need to wait a bit longer to claim their full benefits. The FRA, initially 65 when Social Security was created in the 1930s, has been gradually increasing due to reforms made in 1983. The change is part of a long-term plan to ensure the program’s sustainability as the U.S. population ages.
The 2025 Full Retirement Age Increase
Next year, the full retirement age will be 66 years and 10 months for those born in 1959. This means that individuals reaching age 62 in 2025 will have to wait until November 2025 to begin collecting their full Social Security benefits.
Claiming Benefits Early vs. Late
Retirees can choose to claim their Social Security benefits before reaching the full retirement age, with the earliest age being 62. However, opting to start benefits early results in a permanent reduction of up to 30% in their monthly benefit.
Conversely, those who delay claiming Social Security benefits until after their FRA can receive an 8% increase per year. This “bonus” is a financial incentive for waiting longer to claim benefits, boosting the amount of monthly checks for each year of delay up to age 70.
What the 2025 Changes Mean
The 2025 full retirement age increase is part of a series of scheduled adjustments under the Social Security reform law enacted in 1983. It represents the next-to-last step in a gradual plan to lengthen the FRA.
The final change will affect workers born in 1960 or later, requiring them to wait until they are 67 to reach their full retirement age. A worker born in 1960 would need to wait until their birth month in 2027 to begin receiving full benefits.
Inflation and Cost-of-Living Adjustments
In addition to changes in the full retirement age, Social Security recipients are set to receive a 2.5% cost-of-living adjustment (COLA) in 2025. This COLA is designed to help retirees cope with the rising costs of goods and services by increasing their benefits. The 2.5% adjustment is the smallest since 2021 but reflects the recent slowdown in inflation. Despite this, inflation remains elevated, placing a strain on household budgets.
The Impact on Social Security’s Finances
The U.S. Social Security system is funded primarily through payroll taxes, with a portion also supported by a trust fund. However, the program’s finances are under stress due to the aging population and retirements among the Baby Boomer generation. This demographic shift has reduced the ratio of workers to retirees, leading to concerns about the program’s long-term solvency.
The Social Security trust fund, the Old-Age and Survivors Insurance Trust Fund, is projected to be depleted in 2033. According to the nonpartisan Committee for a Responsible Federal Budget (CRFB), this would necessitate a 21% cut in benefits across the board.
For a typical dual-income couple retiring at that time, this reduction could amount to $16,500 in nominal benefits, while a typical single-income couple could see a $12,400 reduction in benefits.
Conclusion
The increase in the full retirement age and the scheduled cost-of-living adjustment in 2025 are part of ongoing efforts to keep Social Security financially sustainable. While these changes may impact when you can start receiving your full benefits, they are intended to help maintain the program’s solvency for future generations. Understanding these adjustments can help you plan for retirement and make informed decisions about when to start claiming Social Security benefits.
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Eliot Pierce is a dedicated writer for ChiefsFocus.com, covering local crime and finance news. With a keen eye for detail and a passion for storytelling, Eliot aims to provide his readers with clear and insightful analysis, helping them navigate the complexities of their financial lives while staying informed about important local events. His commitment to delivering accurate and engaging content makes him a valuable resource for the community.