Millions of seniors today rely heavily on the monthly benefits they get from Social Security. And while you might be many years away from getting to collect those benefits yourself, it's still important that you stay apprised of Social Security changes. Here are a few key items of note that may not have hit your radar.
1. Next year's COLA won't be nearly as generous as 2023's
Each year, Social Security recipients are eligible for a cost-of-living adjustment, or COLA, to help them maintain their buying power in the face of inflation. In 2023, seniors on Social Security received an 8.7% COLA -- the most generous raise to arrive in years. But 2024's COLA is shaping up to be considerably smaller, thanks to cooling inflation.
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As of now, experts are estimating next year's COLA at 3.2%. That number isn't set in stone, though, since COLAs are based on third-quarter inflation data. Since we're still in September, we don't have that data for September, so that estimate may be slightly off.
All told, next year's COLA won't be anywhere close to 8.7%. Social Security recipients should prepare for that now so there's no shock once an official COLA is announced in October.
2. Benefit cuts may need to happen
Social Security isn't running out of money. The program's main revenue source is payroll taxes, so as long as we have an active labor force, Social Security can continue to exist.
However, in the coming years, a mass exodus of baby boomers from the workforce is apt to result in a revenue shortfall for Social Security. While the program can tap its trust funds to make up that difference, benefit cuts might have to happen once those trust funds run dry. The estimated date for the Social Security trust funds' depletion is 2034 as of now, though that could change.
To be clear, when we talk about Social Security changes, it's important to note that benefit cuts are only a hypothetical change. But current and future beneficiaries should know that the possibility exists.
3. Full retirement age could get moved back
The amount of Social Security you're eligible to receive each month in retirement is based on your personal wage history. But you need to wait until full retirement age (FRA) to collect that monthly benefit in full.
Right now, FRA is 67 for anyone born in 1960 or later. But since Social Security is expected to face a revenue shortfall, lawmakers might opt to push back FRA to 68 or 69 for younger workers to conserve financial resources and potentially prevent benefit cuts.
Once again, this change falls into the hypothetical category. There are other options lawmakers can look at to prevent benefit cuts, like raising the wage cap for Social Security tax purposes or raising the rate of Social Security tax on workers across all incomes. But it's worth noting that there is the potential to see a shift in FRA since that's something that could impact a lot of retirement plans.
Even though Social Security has been around for many decades, the program still undergoes its share of changes -- and has the potential to experience a major shake-up as it gets closer to depleting its trust funds. That's why it's so important to keep tabs on the program, whether you're currently receiving benefits or not. A major change to the program could impact your finances and retirement plans, so it's essential to keep yourself in the loop.
