3 Major Social Security Updates – How They Will Affect Your Retirement Checks

Social Security is approaching a critical juncture, with projections indicating that its trust funds could be depleted within the next decade. While this looming financial crisis is a significant concern for the long-term sustainability of the program, individuals nearing retirement face more immediate challenges. In 2025, two key changes to Social Security are set to take effect, making 2024 a strategically advantageous year for those considering retirement to secure their benefits.

Appeal of Retiring

Ryan McEachron, CEO of ISU Insurance Service ARMAC Agency in Victorville, California, underscores the importance of retiring before these changes are implemented. McEachron, who regularly advises retirees on financial planning, notes that many of his clients who have retired recently feel reassured knowing their Social Security benefits are locked in, free from future reductions. “The peace of mind that comes from knowing exactly how much you will receive each month for the rest of your life is invaluable,” McEachron explains. Retiring before 2025 could provide a more predictable and secure financial future.

Changes

One of the primary reasons 2024 is being touted as a critical year for retirement is the anticipated reduction in the annual cost of living adjustment (COLA). Since 1975, the Social Security Administration (SSA) has adjusted benefit payments each year to keep pace with inflation.

For example, when inflation surged in 2022, the SSA responded with a 5.9% increase in Social Security checks, followed by an 8.7% raise in 2023—the largest COLA in four decades. However, this trend is shifting. In 2024, the increase was a modest 3.2%, and experts predict a further reduction to around 2.63% in 2025.

McEachron notes, “The cost of living adjustment is likely to decrease over the next few years, reducing the growth of future Social Security payments.” This prediction is concerning because the SSA’s COLA is based on the consumer price index for urban wage earners and clerical workers (CPI-W). This measure of inflation doesn’t fully capture the expenses retirees face, particularly in areas like healthcare.

Advocacy groups have long argued that the CPI-W underestimates the cost of living for seniors, leading to a gradual erosion of purchasing power. These groups advocate for using the consumer price index for the elderly (CPI-E), which more accurately reflects the inflation experienced by those aged 62 and older.

Full Retirement Age

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. The FRA is the age at which retirees can claim their full benefit amount. For those born after 1960, the FRA is slowly being pushed back.

Currently, individuals born in 1958, who turn 66 in 2024, 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 explains, “The full retirement age is increasing, meaning people will have to wait longer to receive their full benefits.” Retiring before the FRA increase allows individuals to lock in a higher monthly benefit amount and avoid potential reductions.

Financial Advantage

Given the likely decrease in COLA and the increase in FRA, 2024 presents a more secure financial opportunity for retirees compared to 2025. McEachron emphasizes that retiring before these changes take effect could be advantageous, allowing individuals to secure higher benefits and greater financial security. “Retiring this year provides financial security,” he says, stressing the importance of considering the timing of retirement in light of these impending changes.

For those nearing retirement age, 2024 may be the optimal time to lock in Social Security benefits and avoid the uncertainty and potential reductions that could come with the changes slated for 2025.

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