In the year 2025, known as the date for many effective changes pertaining to Social Security and more specifically Full Retirement Age (FRA), a few corrections are necessary. When it comes to Social Security benefits, more specifically their determination, the age at which one stops working is highly relevant, as well as the implications of ceasing to work too early or too late on the amount that will be paid monthly. For many Americans, the year 2025 will mark the change in the Full Retirement Age (FRA) and information regarding these developments will assist you in better assessing your retirement schemes.
What is the full retirement age in 2025?
Starting in 2025, the FRA for people born in 1959 will be 66 years and 10 months. This marks a gradual increase in the age at which you can claim full benefits. Those born in 1960 or later will have an FRA of 67, but for those born in the late 1950s, the gap is gradually closing as we edge closer to the 67-year mark. If you’re turning 66 in 2024, your FRA would be 66 years and eight months, but that two-month difference can make a noticeable impact on your retirement benefits.
For those who plan to retire early, you can still begin claiming Social Security as early as age 62. However, you will face a penalty in the form of reduced benefits. The further you are from your FRA when you claim, the greater the reduction.
What happens if you retire early?
If you retire at age 62, the earliest you’re allowed to claim Social Security, your monthly check will be reduced by a set percentage. In fact, the Social Security Administration applies a reduction of 5/9 of one percent for each month before your FRA, up to 36 months. If you retire even earlier, any months beyond the first 36 months are reduced by an additional 5/12 of one percent per month.
This may sound complicated, but here’s an example to make it clearer: Let’s say your FRA is 66 years and 10 months in 2025, and you choose to retire exactly at age 62. In this case, your benefits could be slashed by nearly 30%, which is a huge hit to your monthly income.
So, while it might be tempting to start enjoying retirement sooner, the tradeoff is less financial support for the rest of your life. If you’re relying heavily on Social Security, this is something you need to weigh carefully.
What if you delay retirement?
Conversely, if you choose to postpone your retirement age beyond your Full Retirement Age also known as FRA, you can expect an increase in your Social Security monthly benefit amount. For each year you defer taking your benefits past your full retirement age, which is 70 years at the most, the amount increases for around 8% each year. This is referred to as delayed retirement credit and it can help enhance your earnings significantly.
Suppose you are born in 1959, and you only start to claim benefits when you turn 70. In that case, it is possible to experience an increase in monthly benefits by 30-32% if you compare it with claiming benefits at FRA of 66 years and 10 months. That’s appealing for sitting through just a couple of extra years.
However, consider this, going beyond age 70 results in no further increases on benefits. So, if you are well and can still work for some time, it would be wise to wait but not much after 70.
How much will your benefits be reduced in 2025?
The benefits reduction percentage will vary based on how early one claims their benefits relative to their FRA. In 2025, individuals born in 1959 pegged at a FRA of 66 years and 10 months and who retire at 62 years will incur a nearly 30 percent reduction in benefits.
Let us explain this: prior to your FRA, the first 36 months would see a reduction of 5/9 of long disability benefits, if any, for each month that goes. After this period, it is reduced by 5/12 of long disability benefits per each additional month or part thereof. All of these fractions may appear to be difficult or even useless, but they are useful and can amount to even hundreds of dollars less in your monthly benefits.
In this regard, should you expect Social Security to cover a large amount of your retirement income, this is an extremely important factor to consider before committing to a retirement date.
Planning ahead for 2025
Retirement planning is a continuous process that takes time, whether you intend to retire in 2025 or are just starting to explore your options. Hence, it is wise to understand how these mitigations put in place to adjust FRA will influence your benefits. Most importantly do understand that an early retirement has a direct effect of shrinking the amount of your monthly check, whereas putting off the retirement age serves to increase it.
It is well understood that deciding on which age to retire is a very personal decision which is informed by one’s other financial circumstances, health and life ambitions. Nevertheless, appreciating these changes in the FRA will help you know what to look forward to in 2025 more clearly. Looking at making adjustments to your plans at this stage may have a huge impact on your financial well being in the future.
