Social Security is constantly getting tweaked. Here’s what could be changing next.

Social Security has been a staple for decades, but it doesn’t remain static. Significant changes have already occurred in 2024, and it’s crucial to stay informed as we approach the year’s midpoint. Here are some key updates:

1. Next Year’s Cost of Living Adjustment May Shrink At the beginning of 2024, Social Security benefits increased by 3.2% due to the annual cost-of-living adjustment (COLA), designed to help seniors maintain their purchasing power amidst inflation. While recipients will see a COLA in 2025, the raise might be smaller than this year’s, as inflation has slowed. Current estimates suggest a 2.66% COLA, based on early 2024 inflation data. However, since COLAs are determined using third-quarter data, this projection could change.
2. Increased Wage Cap for Social Security Taxes Social Security is primarily funded through payroll taxes, but not all income is taxed. There’s an annual wage cap that limits taxable income for Social Security. In 2024, this cap increased to $168,600, up from $160,200 the previous year. It’s expected to rise again next year. Some lawmakers, including President Biden, advocate for a significant increase in this cap, proposing taxes on earnings over $400,000 to bolster Social Security. It’s unclear if this will pass or how it might affect higher earners’ benefits.
3. Tougher Qualifications for Social Security To qualify for Social Security, one must earn 40 work credits over their lifetime, with a maximum of four credits per year. In 2024, the value of a work credit rose to $1,730 from $1,640 in 2023. While this increase means workers need to earn more to qualify, it also helps ensure the program’s financial stability through increased payroll tax revenue.

It’s easy to assume that Social Security remains unchanged, but staying informed is crucial for both current retirees and new workers. Changes can significantly impact your finances, so keep abreast of the latest updates.

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