Because Social Security has been around for decades, you might assume that the program pretty much stays the same from one year to the next. But that’s not necessarily true.
Social Security has already undergone some pretty notable changes in 2024. Now that we’re reaching the midpoint of the year, it’s important that you be aware of these key things.
1. Next year’s cost of living adjustment may shrink
At the start of 2024, Social Security benefits rose 3.2%. Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA, to help seniors maintain their buying power in the face of inflation.
Social Security recipients will clearly be in line for a COLA in 2025. But next year’s raise may not be as generous as this year’s, since the pace of inflation has slowed.
Current estimates are calling for a 2.66% COLA, based on inflation data gathered from the first few months of 2024. However, Social Security COLAs are calculated based on third-quarter inflation data, so any projection that’s out there at present is subject to change.
2. The wage cap for Social Security taxes increased
Social Security’s main source of funding is payroll tax revenue, but it’s not a given that workers will pay those taxes on their entire salary. That’s because there’s a wage cap put in place each year that determines how much income is taxed for Social Security purposes.
In 2024, the wage cap rose to $168,600 but was $160,200 the year before. Next year, the wage cap for Social Security is likely to go up again. But some lawmakers want to see that wage cap rise substantially.
President Biden has pledged to strengthen Social Security for future retirees, but part of his plan involves taxing earnings over $400,000 for Social Security purposes. It’s not yet clear whether lawmakers will allow that proposal to go through and whether it’ll mean that higher earners are eligible for a larger maximum monthly benefit from Social Security due to paying more money into the program.
3. It’s gotten harder to qualify for Social Security
To collect Social Security in retirement, you need to earn 40 work credits in your lifetime at a maximum of four credits per year. The value of a work credit rose to $1,730 in 2024, up from $1,640 the previous year.
The fact that the value of work credits is rising isn’t so terrible, though. Social Security needs payroll tax revenue to stay afloat, and requiring workers to earn a bit more to be eligible for benefits lends to that goal.
It’s natural to assume that Social Security will stay the same from one year to the next, but it’s important to keep reading up on the program whether you’re a current retiree or new to the labor force. You never know when a given change might impact your finances one way or another.
