Because Social Security has been around for decades, you might assume that the program stays pretty much the same from year to year. But this is not necessarily true.
Social Security has already undergone some pretty significant changes in 2024. Now that we’re halfway through the year, it’s important to be aware of these key things.
1. Next year’s cost of living adjustment may shrink
Beginning in 2024, Social Security benefits increased by 3.2%. Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA, to help seniors maintain their purchasing power in the face of inflation.
Social Security recipients will clearly be in line for a COLA in 2025. But next year’s increase may not be as generous as this year’s as the pace of inflation has slowed.
Current estimates call for a COLA of 2.66%, based on inflation data collected from the first months of 2024. However, Social Security COLAs are calculated based on third quarter inflation data, so any projection that is currently subject to change.
2. The wage limit for social security taxes was increased
The main source of funding for Social Security is income from payroll taxes, but it is not a given that workers will pay those taxes on their entire salary. That’s because there is a salary cap set each year that determines how much income is taxed for Social Security purposes.
In 2024, the salary cap increased to $168,600, but it was $160,200 a year ago. Next year, the wage cap for Social Security is likely to rise again. But some lawmakers want to see the salary cap raised significantly.
President Biden has pledged to strengthen Social Security for future retirees, but part of his plan includes taxing incomes above $400,000 for Social Security purposes. It’s not yet clear whether lawmakers will allow that proposal to take effect and whether it would mean higher earners are eligible for a larger maximum monthly Social Security benefit because they pay more money into the program.
3. It has become more difficult to qualify for Social Security
To collect Social Security in retirement, you must earn 40 work credits during your lifetime with a maximum of four credits per year. The value of a work credit rose to $1,730 in 2024, up from $1,640 a year ago.
However, the fact that the value of work loans is increasing is not so terrible. Social Security needs payroll tax revenue to stay afloat, and requiring workers to earn a little more to qualify for benefits lends itself to that goal.
It’s natural to assume that Social Security will stay the same from year to year, but it’s important to keep reading the program whether you’re a current retiree or new to the workforce. You never know when a certain change might affect your finances one way or another.
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