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Social Security is approaching a financial crisis, with projections indicating that the funds sustaining the program will be exhausted in roughly a decade. While this long-term issue is significant, individuals nearing retirement have more pressing concerns. Specifically, two notable changes to Social Security are expected to take effect in 2025, making 2024 a strategic year for those considering retirement to claim their benefits.
According to Ryan McEachron, CEO of ISU Insurance Service ARMAC Agency in Victorville, California, “Now is an excellent time to retire given upcoming changes to Social Security.” McEachron, who advises retirees on financial planning, notes that his clients who have retired in recent years are relieved to have secured their benefits before these major changes are implemented.
“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.”
Changes to Social Security that Are Coming
Several factors contribute to why 2024 is a particularly advantageous year to retire. One key consideration is the anticipated reduction in the annual cost of living adjustment (COLA) starting in 2025. Since 1975, the Social Security Administration (SSA) has been calculating an annual COLA to ensure that benefit payments keep pace with inflation.
For instance, when inflation surged in 2022, the SSA responded by increasing monthly Social Security checks by 5.9%. The following year, retirees saw an 8.7% raise, the largest COLA in four decades, in response to the highest inflation rate in 40 years. However, this year’s increase was a modest 3.2%, signaling a downward trend likely to persist into 2025.
McEachron, who is also a member of the Victorville City Council and has held various leadership roles in the local Chamber of Commerce, pointed out that “the cost of living adjustment is likely to decrease over the next few years, reducing the growth of future Social Security payments.” Initially, experts predicted a 2.7% COLA for 2025, but recent inflation data released in August led to a revised projection of just 2.63%, as reported by The Motley Fool.
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Even this 2.63% COLA may not be as beneficial as it appears. The SSA bases its COLA calculations on the consumer price index for urban wage earners and clerical workers (CPI-W), a measure of inflation that some argue does not accurately reflect the expenses retirees face, particularly in healthcare.
Advocacy groups like the National Active and Retired Federal Employees Association (NARFE) have criticized the CPI-W for underrepresenting the actual cost of living increases experienced by seniors, leading to a gradual erosion of beneficiaries’ purchasing power over time. These organizations have called for a switch to the consumer price index for the elderly (CPI-E), which focuses on inflation as it affects those aged 62 and older.
Another significant change on the horizon is the gradual increase in the full retirement age (FRA). Although individuals can begin claiming Social Security benefits as early as age 62, doing so results in a permanent reduction in their monthly payments, up to 30% less than their full benefit. The FRA is the age at which retirees can claim their entire benefit amount, but for those born after 1960, this age is slowly being pushed back.
McEachron explains, “The full retirement age is increasing for those born after 1960, meaning people will have to wait longer to receive their full benefits.” Currently, those who turn 66 in 2024, and were born in 1958, will reach their FRA at 66 years and 8 months. For those born in 1959 and turning 66 in 2025, the 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.
McEachron advises that retiring before these changes take effect could be advantageous. “By retiring sooner, people can lock in a higher benefit amount and avoid future reductions,” he said. The combination of a likely reduced COLA and the increase in FRA has led McEachron to conclude that 2024 offers a more secure financial opportunity for retirees compared to 2025.
“Retiring this year provides financial security,” he emphasized, underscoring the importance of considering the timing of retirement in light of these impending changes.
