Three Significant Updates to Social Security – Direct Impact on Retirees’ Checks

If you’re nearing retirement, timing is everything, especially with significant changes to Social Security on the horizon. The financial landscape for retirees is expected to shift in 2025, making 2024 a critical year to consider claiming your Social Security benefits. With the program facing long-term financial challenges and upcoming adjustments that could affect your retirement income, acting sooner rather than later may offer a more secure financial future.

Social Security Crisis

Social Security is inching towards a financial crisis, with projections suggesting that the funds sustaining the program may be depleted within the next decade. This long-term issue is concerning, but for those nearing retirement, the immediate focus should be on changes set to take effect in 2025. These changes could impact how much you receive in benefits, making 2024 an optimal time to retire and lock in your payments.

Changes to COLA

One of the most significant changes expected in 2025 is the reduction in the annual cost of living adjustment (COLA). The Social Security Administration (SSA) has been providing annual COLAs since 1975 to help benefits keep pace with inflation.

For example, in response to high inflation rates in 2022, the SSA increased Social Security checks by 5.9%, followed by an 8.7% raise in 2023, the largest in four decades. However, the increase for 2024 was a modest 3.2%, and projections suggest that the COLA for 2025 could drop further to around 2.63%.

This downward trend in COLA is concerning because it means future Social Security payments will grow more slowly, potentially impacting your purchasing power in retirement. The COLA is calculated based on the consumer price index for urban wage earners and clerical workers (CPI-W), a measure some argue does not accurately reflect the expenses retirees face, especially in healthcare.

Advocacy groups like the National Active and Retired Federal Employees Association (NARFE) have criticized the CPI-W for underestimating the true cost of living increases for seniors, advocating for a switch to the consumer price index for the elderly (CPI-E), which more accurately tracks inflation for those aged 62 and older.

Increasing FRA

Another critical change is the gradual increase in the full retirement age (FRA). While you can begin claiming Social Security benefits as early as age 62, doing so results in a permanent reduction in your monthly payments—up to 30% less than if you waited until your FRA. The FRA is the age at which you can claim your full benefit amount without reductions, and for those born after 1960, this age is slowly being pushed back.

For example, those born in 1958, turning 66 in 2024, will reach their FRA at 66 years and 8 months. However, if you were born in 1959 and are turning 66 in 2025, your FRA will be 66 years and 10 months. This trend will continue, with the FRA rising to 67 for anyone born in 1960 or later. Delaying retirement until after these changes take effect means you might have to wait longer to claim your full benefits, which could impact your retirement plans.

Why Retiring in 2024

Given these upcoming changes, 2024 presents a unique window of opportunity for those considering retirement. By retiring before the reduced COLA and increased FRA take effect, you can secure a higher benefit amount and avoid potential future reductions.

According to Ryan McEachron, CEO of ISU Insurance Service ARMAC Agency, now is an excellent time to retire due to the upcoming changes in Social Security. His clients, who retired in recent years, feel relieved knowing they’ve secured their benefits ahead of these significant shifts. “Retiring this year provides financial security,” McEachron emphasized, highlighting the importance of timing in retirement planning.

By locking in your benefits in 2024, you gain the peace of mind that comes from knowing exactly how much you will receive each month, without worrying about future reductions. This certainty can make a significant difference in your retirement planning, especially as the financial landscape becomes more uncertain.

As you consider your retirement options, take into account these impending changes to Social Security. Retiring in 2024 could be the best move to ensure you maximize your benefits and enjoy a more secure financial future.

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