The “full retirement age” (FRA) for Social Security is set to rise again in 2025. This change means that those close to retiring will have to wait a little longer before they can claim their full benefits.
Here’s everything you need to know about the upcoming increase and what it could mean for your retirement plans.
What Is the Full Retirement Age?
The full retirement age is the age when you are eligible to receive your full Social Security benefits without any reduction. When Social Security was first created in the 1930s, the full retirement age was set at 65. However, over time, the age has gradually increased.
In 1983, reforms were made to raise the FRA from 65 to 67. This increase took place over 22 years, with people who turned 62 starting in 2000 experiencing a gradual rise in their FRA in two-month increments. Next year, the FRA will rise again, but this time, the change will apply to people born in 1959.
How Will the Full Retirement Age Change in 2025?
In 2025, the full retirement age will be 66 years and 10 months for people born in 1959. These individuals will be able to claim their full Social Security benefits starting in November 2025. This change is part of the ongoing adjustments to the program, which began decades ago.
While this rise is significant, it’s important to remember that retirees can still begin collecting Social Security benefits at the age of 62.
However, if they choose to claim early, their monthly benefits will be permanently reduced. The reduction could be as high as 30%, depending on how early they start collecting.
Early Retirement vs. Delayed Retirement
Although the full retirement age is increasing, retirees have choices when it comes to when they start receiving their benefits.
People can begin collecting Social Security benefits at age 62, but this comes with a penalty: a permanent reduction in the monthly payout. On the other hand, waiting until the FRA or even beyond could result in a larger benefit.
If someone delays claiming their benefits, they can earn a bonus of up to 8% for each year they wait past their FRA until they reach the age of 70. This is a great option for those who can afford to wait, as it can significantly increase the amount they receive.
The 1983 Social Security Reform Law
The upcoming increase in the full retirement age in 2025 is part of the ongoing changes from the 1983 Social Security reform law.
That law gradually increased the full retirement age from 65 to 67, and next year’s change will mark the second-to-last adjustment.
The final change will occur for people born in 1960 or later. These individuals will need to wait until they are 67 to claim their full benefits. For example, someone born in 1960 will reach their FRA in 2027, and they can claim their full benefits starting that year.
What About the Cost-of-Living Adjustment (COLA)?
Social Security recipients are also set to receive a 2.5% cost-of-living adjustment (COLA) for 2025. The COLA is designed to help beneficiaries keep up with inflation, ensuring that the purchasing power of Social Security benefits doesn’t decrease as prices rise.
The 2.5% increase is the smallest COLA since 2021. The adjustment comes as inflation in the U.S. has slowed in recent years, after reaching its highest level in four decades in 2022. However, prices remain high, continuing to affect household budgets.
Most Social Security recipients will see the new COLA take effect in their January 2025 benefit payments. This increase will help offset the rising costs of living, although it may not fully cover the higher prices in many areas.
The Financial Health of Social Security
While changes to the full retirement age and COLA adjustments are important, the long-term financial health of the Social Security program is a significant concern.
Social Security is primarily funded through payroll taxes. However, as the U.S. population ages and more Baby Boomers retire, the number of workers paying into the system is shrinking.
This shift has put a strain on the program’s finances, and experts predict that Social Security could face insolvency if action isn’t taken.
The primary trust fund for Social Security, the Old Age and Survivors Insurance Trust Fund, is projected to be depleted by 2033. If that happens, benefits could be reduced by about 21% across the board, according to the nonpartisan Committee for a Responsible Federal Budget (CRFB).
What Does This Mean for You?
With the increase in the full retirement age, those planning for retirement will need to adjust their expectations and prepare accordingly.
The Social Security program will continue to offer benefits, but it’s important to keep in mind that future adjustments could impact how much you receive.
Additionally, the possibility of benefit cuts in the future highlights the need to save and plan for retirement beyond just Social Security.
Planning is crucial. Whether you’re close to retirement or still years away, understanding how these changes affect your benefits is key to ensuring a secure financial future. Consider speaking with a financial advisor to explore all your retirement options and strategies.
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