Social Security pays benefits to millions of retired Americans. And for many people, those benefits are their sole source of retirement income.
But whether you're retired or not, it's important to stay informed about Social Security changes. Here are a few recent ones you may not have known about.
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1. Workers are being taxed on more earnings to fund the program
Social Security's main funding source is payroll tax revenue. In fact, it's a decline in payroll tax revenue that has the program's Trustees worried about benefit cuts in a little more than 10 years.
As baby boomers exit the workforce, they're going to stop paying into the system. And while new workers will come in as boomers leave, the number of workers exiting the labor force is expected to exceed the number available to replace them. That's going to force Social Security to tap its trust funds to keep up with scheduled benefits until they run dry -- at which point, benefit cuts may have to happen.
Meanwhile, this year, there's a higher wage cap than last year for Social Security tax purposes. In 2022, earnings of up to $147,000 were subject to payroll taxes. This year, earnings of up to $160,200 can be taxed to fund Social Security.
2. Qualifying for benefits is getting harder
It's a big myth that everyone is eligible for Social Security once they get older. In reality, you need to pay into Social Security to qualify for benefits down the line.
Social Security eligibility hinges on accruing 40 work credits in your lifetime, at a maximum of four credits per year. And the value of a work credit can change from one year to the next.
In 2022, it took $1,510 in earnings to earn a single work credit. This year, it takes $1,640 in earnings.
3. Experts are anticipating a lower cost-of-living adjustment in 2024
Seniors on Social Security got a massive 8.7% cost-of-living adjustment, or COLA, at the start of 2023. That COLA has no doubt helped many beneficiaries gain some buying power.
But next year's COLA isn't looking like it will be as generous. See, COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. Last year, rampant inflation caused that index to soar, but this year, annual inflation isn't as extreme. As such, seniors should expect a much lower Social Security COLA in 2024.
Recently, the nonpartisan Senior Citizens League estimated that next year's COLA would be 2.7% -- a far cry from the 8.7% COLA that went into effect in 2023. We'll need to wait until October to see what 2024's COLA officially looks like since it's based on third-quarter CPI-W data. But either way, seniors should not expect nearly as much of a raise.
You may not be inclined to seek out Social Security news all that often. But it's important to keep tabs on what's happening in the program, as it has the potential to impact your finances. This holds true whether you're already collecting benefits or nowhere close to being retired.
