Social Security is getting close to a financial problem. The money that supports the program is expected to run out in about ten years. This long-term problem is important, but people who are getting close to retirement have more important things to worry about right now.
In particular, two big changes to Social Security are set to happen in 2025. This means that 2024 is a good year for people who are thinking about retiring to start collecting their benefits.
“Now is a great time to retire because of changes coming to Social Security,” says Ryan McEachron, CEO of ISU Insurance Service ARMAC Agency in Victorville, California.
McEachron helps retirees plan their finances and says that his clients who left in the last few years are glad they were able to get their benefits before these big changes happen.
“They are more sure of their plans for retirement now that they know how much Social Security they will get every month for the rest of their lives.” Not having to worry about possible cuts to benefits is a great source of peace of mind.
Changes to Social Security that are coming
A lot of good things come together to make 2024 a great year to retire. One important thing to think about is that the yearly cost of living adjustment (COLA) will likely go down starting in 2025. The Social Security Administration (SSA) has been figuring out an annual COLA since 1975 to make sure that benefit payouts keep up with inflation.
For example, when prices went up in 2022, the SSA reacted by raising monthly Social Security checks by 5.9%. When prices went up the most in 40 years, retirees got a raise of 8.7% the next year. This was the biggest COLA in 40 years. But this year’s rise was only 3.2%, which means that prices are expected to keep going down until 2025.
McEachron, who is on the Victorville City Council and has been in charge of different parts of the local Chamber of Commerce, said, “The cost of living adjustment is likely to decrease over the next few years, which will slow the growth of future Social Security payments.” At first, experts thought the COLA would be 2.7% in 2025, but new inflation numbers released in August led to a new prediction of only 2.63%, as The Motley Fool reported.
Even this 2.63 percent COLA might not be as helpful as it seems. Some people say that the consumer price index for urban wage earners and clerical workers (CPI-W), which is used by the SSA to figure out COLA, doesn’t truly show the costs that retirees face, especially when it comes to healthcare.
Advocate groups like the National Active and Retired Federal Employees Association (NARFE) say that the CPI-W doesn’t show how much seniors’ costs of living have really gone up, which makes it harder for them to buy things over time. The consumer price index for the elderly (CPI-E), which looks at how inflation affects people aged 62 and up, has been pushed by these groups.
The full retirement age (FRA) is slowly going up, which is another big change that is coming. People can begin collecting Social Security benefits as early as age 62, but if they do, their monthly payouts will always be up to 30% less than their full benefit.
People who retired before the FRA can get their full benefit amount. But for people born after 1960, this age is slowly being pushed back.
“The full retirement age is going up for people born after 1960,” says McEachron. “This means that people will have to wait longer to get their full benefits.” People born in 1958 who will turn 66 in 2024 will reach their FRA at 66 years and 8 months.
It will be 66 years and 10 months for people born in 1959 who turn 66 in 2025. As long as this keeps up, the FRA will go up to 67 for people born after 1960.
McEachron says that it might be a good idea to retire before these changes take effect. “Many people can lock in a higher benefit amount and avoid future cuts by retiring earlier,” he said.
By looking at the expected lower COLA and the rise in FRA, McEachron has come to the conclusion that 2024 is a safer financial year for retirees than 2025.
“Retiring this year gives you financial security,” he said, stressing how important it is to think about when to retire in light of these upcoming changes.
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