Delayed Payday: The Real Cost of Social Security's Rising Retirement Age

What Happened?

The full retirement age for Social Security is set to increase in 2025.

It will shuffle retirement dates for some. Those nearing retirement may need to hold off longer in order to claim a bigger benefit.

The full retirement age (FRA) was 65 when the program was originally incepted in the 1930s. However, since 1983 it has steadily increased from 65 to 67 in two-month increments.

Next year, the FRA will continue rising to 66 years and 10 months for people born in 1959.

Beginning in November 2025, they will start to qualify for their full benefits amount. The final increase under this reform will apply to those born in or after 1960, requiring them to wait until they are 67 to claim full benefits.

Why it Matters

Retirees can begin collecting benefits from Social Security before they reach their FRA, with the minimum age being 62.

However, retirees who elect to claim their benefits early will have their monthly benefits permanently reduced by as much as 30%. But that depends on how early they choose to claim their benefits.

Conversely, retirees who elect to delay their benefits beyond their FRA may see an annual increase of up to 8%.

Next year's FRA increase is a reflection of the financial strain and challenges facing Social Security as the population in the U.S. continues to age. Baby Boomer retirements coupled with lower birth rates have contributed to a shrinking ratio of workers to retirees, which threatens the program's long-term solvency.

Although Social Security relies primarily on payroll taxes for the lion's share of its funding, it also draws from a trust fund to cover any shortfalls. However, this trust fund is projected to be depleted by 2033, which may trigger a 21% cut in benefits unless Congress takes action beforehand.

A reduction of that amount could spell severe consequences for some retirees. According to estimates from the Committee for a Responsible Federal Budget (CRFB), a typical dual-income couple would see their benefits drop by up to $16,500. Those filing as single income could see their benefits reduce up to $12,400.

Reductions like this would substantially impact the financial security of millions of Americans who are reliant on Social Security income as a major or even primary source of income in retirement.

How it Affects You

The continued changes to the FRA and the looming threat of benefit cuts make it more critical than ever for Americans to begin to carefully plan for retirement. Those nearing retirement must start to weigh the trade-offs of claiming their Social Security benefits early as opposed to waiting to draw in order to maximize their monthly benefit.

Delaying until age 70 may offer a substantial increase in monthly payments. But the potential depletion of the trust fund raises questions and uncertainty about whether or not full benefits will even remain in the coming decades.

While the 2.5% COLA adjustment this year may provide some relief to retirees by offsetting higher living costs, it may not completely account for persistent rises in inflation. As prices for goods and services remain high, retirees may find their purchasing power stretched thin.

For younger workers, these changes underscore the importance of careful retirement planning, which includes diversifying retirement portfolios in order to reduce dependence on Social Security, as its future seems to be ever-changing.

By understanding these changes and planning proactively, you can better prepare for the future, which includes the ever-evolving landscape of retirement benefits.