Social Security pays a monthly benefit to millions of retired seniors. And while the program has been around for many years, it also tends to undergo a number of big changes from one year to the next.
These changes are largely based on inflation data. And because a full set of that doesn't come in until October, we won't know for sure what Social Security will look like in 2024 until closer to the middle of the month. But based on what we know already, here are some Social Security changes that are very likely for 2024.
Image source: Getty Images.
1. A much smaller cost-of-living adjustment
The purpose of cost-of-living adjustments, or COLAs, is to help seniors on Social Security maintain their buying power in the face of rising living costs. This year, seniors on Social Security received an 8.7% COLA following a year of rampant inflation. But because inflation has cooled off in 2023, next year's COLA is not going to be as high.
We don't yet have September's inflation data to factor into that calculation. But based on existing date, it's fair to assume that 2024's COLA will fall somewhere into the 3% to 3.5% range.
Now clearly, that's a far cry from 8.7%. But it's also not such a small raise in the context of previous Social Security COLAs, either. Plus, as a consolation, prices are coming down across many key spending categories, so that should help offset the blow of a smaller increase.
2. A higher wage cap
Social Security's primary source of funding is payroll tax revenue. But workers who earn a lot of money don't necessarily pay taxes on all of their income. Each year, a wage cap is established that limits the amount of earnings that are subject to Social Security taxes.
This year, the wage cap sits at $160,200. But that number is apt to increase in conjunction with wage growth come 2024. It's too soon to know exactly how much extra income will be subject to Social Security taxes, but higher earners should prepare to open their wallets even more.
3. A higher threshold for earning work credits
Collecting Social Security in retirement isn't a given. Rather, workers have to earn their benefits by accumulating work credits at a maximum of four credits per year.
Work credits are worth a certain amount of earnings. This year, a credit equals $1,640 of income. But that number is likely to rise in 2024. This means that people who work on a very part-time basis will need to be mindful of their income if they want to snag their maximum four Social Security credits.
We won't know for another week or so exactly what changes are coming to Social Security in 2024. But this should serve as a preview of what's likely to come. Clearly, these changes don't just impact current Social Security recipients -- they also impact people who are many years away from collecting benefits. So it's really important for everyone to stay apprised of Social Security changes as they're announced.
