The Social Security program is on a path to an imminent insolvency hole, as it could face insolvency problems in less than ten years, setting off alarms among retiree protection groups.
In fact, the Social Security Administration (SSA) will already be implementing changes starting in 2025 that could potentially reduce benefits for retirees who claim their benefits starting that year.
That’s why many people are considering starting to claim their payments before the end of 2024. Ryan McEachron, CEO of ISU Insurance Service ARMAC Agency in Victorville, California, an expert in the area, says “now is an excellent time” to retire, given the changes that are coming.
“My clients who have retired in recent years are relieved to have their benefits locked in before major Social Security changes take effect. 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,” explained him.
First Change: The 2025 COLA Increase Will Be One of the Smallest in History
Since 1975, several federal programs, including Social Security benefits, have applied a zero increase called a cost of living adjustment (COLA), designed to help federal payments and allowances keep pace with inflation. In general, beneficiaries are given this tool so that they do not lose purchasing power after the increase in prices of products and services.
The amount of the adjustment is based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during a specific period. If the CPI rises, benefits are adjusted upward to reflect that increase in the cost of living.
For example, the COLA increase for the year 2024 was 3.2%, so the monthly benefits beneficiaries receive increased by 3.2% for that year, every month, until December.
That juicy increase of 8.7% in 2023 (the largest in 40 years) is far away, and that interesting 5.9% in 2022. The COLA increase trend for the year 2025 could disappoint many, with an even lower number than that of the current year.
“The cost of living adjustment is likely to decrease over the next few years, reducing the growth of future Social Security payments,” said McEachron, interviewed by Yahoo Finance. He’s also a member of the Victorville City Council and who spent six years on the Victorville Chamber of Commerce board of directors, including a stint as chairman of the board.
Experts warn that the 2025 COLA increase will be below 2.7%, and even new inflation data (used for the calculation) reported by The Motley Fool says it will drop to 2.63%.
Should the COLA Increase Calculation Method be Changed?
The Bureau of Labor Statistics (BLS) produces the Consumer Price Index for Urban Wage Earners and Clerical Employees (CPI-W), a key indicator that the Social Security Administration (SSA) uses to calculate cost-of-living adjustments (COLA). ).
However, organizations such as the National Association of Active and Retired Federal Employees (NARFE) maintain that the CPI-W does not accurately reflect the costs that retirees face in real life, particularly when it comes to rising health care spending. According to NARFE, this imbalance causes COLAs to not adequately cover the increased cost of living of seniors, resulting in a gradual decrease in the purchasing power of beneficiaries.
Given this situation, NARFE and other advocacy entities have asked legislators to adopt the Consumer Price Index for the Elderly (CPI-E), an indicator that more accurately measures the inflation that affects people over 62 years of age. or more.
Change 2: It Was Proposed to Increase the Full Retirement Age
To this day, retirees in the United States can apply for Social Security payments starting at age 62, but the SSA cuts up to 30% of the check for those who retire too early.
Only those who wait until full retirement age (FRA) can choose to collect 100% of their earned pay. However, the FRA is increasing for those born after 1960, meaning millions of future retirees will have to wait many more years to claim their benefits.
- For those who turn 66 in 2024, the minimum retirement age is 66 years and 8 months.
- This is the minimum retirement age for anyone born in 1958.
- The minimum retirement age is being delayed for those born in 1959; They must wait until age 66 years and 10 months to receive their full benefit.
- In 2026, the minimum retirement age will increase again; Anyone born in 1960 or later will have a minimum retirement age of 67.
With all that information under your belt, you can consider whether you should consult with your trusted retirement advisor to determine if it’s worth it to apply for Social Security benefits this year, or wait until next year.