Millions of Americans will be impacted by a major change to Social Security beginning in 2025, which will impact when they can retire with full benefits.
Only those born prior to 1960 will still be able to retire at age 66 and 10 months and get 100% of their benefits, according to confirmation from the Social Security Administration (SSA). In order to receive full retirement benefits, people born in 1960 or later will now have to wait until they are 67 years old.
Many people who are getting close to retirement are reevaluating their plans in light of this change. Should you wait for a larger monthly payment or retire early with less benefits? Everything you need to know about these impending changes is included in this guide.
Your Experiences with the 2025 Social Security Age Change
You can get your full Social Security benefits in 2025 at age 66 and 10 months if you were born before 1959. However, the full retirement age (FRA) rises to 67 for people born in 1960 or after.
Benefits will be permanently lowered for those who wish to retire early at age 62. Retirement financial stability may be severely impacted by the 30% cut. On the other hand, payments can increase by 8% year until age 70 if retirement is postponed past the FRA.
Take John, for instance, who was born in February 1959. His FRA is 66 years and 10 months under the current method. His lifetime Social Security benefits will be much lower if he chooses to retire at age 62. He could get up to 30% more per month, though, if he waits until he is 70.
Is It Wise to Take Early Retirement?
Early retirement is a desirable choice, but it has a price. Here are some things to think about:
Your payments are permanently decreased by roughly 0.55% each month for the first three years if you retire before your FRA.
- After that time, the monthly decrease rises to 0.42%.
- If a 1960-born person retires at age 62, their lifetime payments will be reduced by 30%.
Some choose to work longer and earn more monthly wages, while others would rather retire early and enjoy their independence. When choosing the best course of action, personal health and financial stability are important considerations.
States with the Best Taxes for Retirees
How much of your Social Security income you keep depends largely on where you reside. Retirees in certain states can extend their benefits by taking advantage of tax breaks:
- Illinois: Social Security payouts, 401(k) withdrawals, and pension income are all exempt from state taxation.
- Iowa: State taxes on Social Security payouts, 401(k) distributions, and IRA withdrawals are waived for residents 55 and older.
- Mississippi: The state does not impose taxes on retirement income.
Pennsylvania: Social Security payouts, 401(k) contributions, and pensions are all tax-free.
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Getting the Most Out of Social Security Benefits
To have a financially secure retirement, preparation is essential. Before choosing when to file for benefits, experts advise considering the following factors:
- Waiting till age 70: This tactic guarantees spouses the maximum monthly income and improved survivor benefits.
- Claiming at age 62: This results in permanently lower payouts but offers an early cash buffer.
- Other sources of income: Social Security can be augmented by investments, savings accounts, and pensions.
To optimize financial flexibility, Stephanie McCullough, a financial specialist at Sofia Financial, suggests minimizing fixed expenses. “If you maintain a lower cost of living, you’ll have more room for discretionary spending and better financial stability,” she says.
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Additional 2025 Social Security Adjustments
In 2025, a number of additional Social Security adjustments will go into effect in addition to the FRA increase:
- Benefits will increase by 2.5% thanks to the cost-of-living adjustment (COLA), down from 3.2% in 2024.
- Maximum taxable earnings: $176,100 will be the new income threshold for Social Security tax, up from $168,600.
- Earnings test: For individuals below FRA, the income threshold prior to benefit reduction will rise to $23,400, while for those above FRA, it will rise to $62,160.
- Appointment-based services: To expedite in-person visits, Social Security offices will switch to an appointment-only format.
Planning ahead is more crucial than ever because Social Security qualifying requirements are changing. Knowing how these changes impact your money will help you make wise decisions, regardless of whether you decide to defer receiving benefits or retire early.
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The main lesson is to think about the financial implications before rushing to seek Social Security payments. You may assure a stable financial future and optimize your retirement income by carefully planning.
