Social Security is set to undergo essential changes in 2025 that could affect millions of retirees and future beneficiaries. One significant change is the full retirement age (FRA) shift. For those turning 66 in 2025, the FRA will be 66 years and 10 months, a two-month increase from the previous year.
This means that individuals must wait longer to claim their full benefits without facing early filing penalties. The penalties for claiming benefits before FRA are substantial. For each of the first 36 months before FRA, benefits are reduced by 5/9 of 1%.
The reduction is 5/12 of 1% for any additional months before that. This change forces retirees to make a difficult choice: either work longer to avoid penalties or accept a permanent reduction in their monthly benefits. Another notable change expected in 2025 is a smaller Cost-of-Living Adjustment (COLA) compared to recent years.
Social Security shifts in retirement timing
COLAs are based on inflation, and with preliminary data suggesting lower inflation rates, experts predict a COLA of around 2.7% for 2025. This is a significant decrease from the 8.7% increase in 2023 and the 3.2% bump in 2024.
While COLAs are intended to help benefits keep pace with inflation, they have historically fallen short. Since 2000, Social Security benefits have lost 36% of their buying power due to COLAs not accurately reflecting the spending habits and inflation experienced by seniors. Current and future retirees should start planning to prepare for these changes.
Those nearing retirement may need to consider working a few extra months to avoid early filing penalties. All beneficiaries should review their budgets and make necessary adjustments to account for a potentially smaller COLA in 2025. By understanding these upcoming changes and taking proactive steps, retirees can better position themselves financially and make informed decisions about when to claim their Social Security benefits.
It’s crucial to stay informed and adapt to these changes to ensure a more stable financial future in retirement.
