Social Security is a vital source of income for millions of retirees, and many workers will one day depend on benefits. Yet Americans consistently score poorly on quizzes assessing their knowledge of Social Security, including aspects of the program that impact their income on an annual basis.
For instance, Social Security benefits will get a cost-of-living increase in 2024, and some workers will pay more taxes into the Social Security program. But a recent survey from Nationwide Retirement Institute found that both changes could surprise many Americans.
Read on to learn more.
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1. Social Security benefits will get an above-average cost-of-living adjustment in 2024
According to the Nationwide Retirement Institute, 70% of surveyed adults incorrectly agreed with this statement: "Social Security is not protected against inflation." That misconception is somewhat surprising given the state of the economy. More than 60% of American households say recent price increases have caused financial hardship, and 15% qualify the hardship as severe, according to pollster Gallup.
In any case, Social Security benefits are indeed protected from inflation. Recipients get annual cost-of-living adjustments (COLAs) that keep their benefit income aligned with rising prices. Without those regular increases, Social Security would quickly lose buying power. For instance, what $500 could purchase in 2013 would cost about $658 today, according to the Labor Department.
Social Security benefits will get a 3.2% COLA in 2024. That is a much smaller increase than the 8.7% COLA in 2023 or the 5.9% COLA in 2022, but it still falls comfortably above the average increase of 2.6% during the last 10 years.
The chart below shows how the 3.2% COLA will impact the average Social Security benefit paid to retired workers, spouses, and disabled workers next year.
|
Type of Benefit |
Before 3.2% COLA |
After 3.2% COLA |
Increase |
|---|---|---|---|
|
Retired workers |
$1,847 |
$1,906 |
$59 |
|
Spouses |
$885 |
$913 |
$28 |
|
Disabled workers |
$1,489 |
$1,537 |
$48 |
Data source: The Social Security Administration.
Social Security recipients should receive a COLA notice by mail in December detailing their updated benefit amount for 2024. Alternatively, beneficiaries can also find that information online in the Message Center of their my Social Security account.
2. Some workers will pay more taxes into the Social Security program in 2024
According to the Nationwide Retirement Institute, 74% of surveyed adults incorrectly agreed with the following statement: "Workers pay Social Security taxes on all of their income." That misconception is understandable. Social Security is primarily funded through a dedicated payroll tax, and common sense says that tax should apply evenly to all income.
But the system does not work like that. Current law limits the amount of income subject to Social Security payroll tax, meaning some workers do not pay Social Security tax on all of their income. Many policy experts and politicians see that as a problem, and several have proposed changes, because workers with income above the cap are effectively taxed at a lower rate.
In any case, the maximum taxable earnings limit is adjusted each year to account for changes in general wage levels. The limit is $160,200 in 2023. That means workers will pay Social Security taxes on all income up to $160,200 -- typically at a rate of 6.2%, though self-employed individuals pay 12.4% -- but any income above the limit is tax free.
The chart below shows how the maximum taxable earnings limit has changed over the last five years.
|
Year |
Maximum Taxable Earnings Limit |
|---|---|
|
2020 |
$137,700 |
|
2021 |
$142,800 |
|
2022 |
$147,000 |
|
2023 |
$160,200 |
|
2024 |
$168,600 |
Data source: The Social Security Administration.
As shown above, the maximum taxable earnings limit will increase from $160,200 this year to $168,600 next year. That means some workers will owe Social Security tax on an additional $8,400 in income next year. Assuming a rate of 6.2%, taxes will take an additional $520.80 from those workers in 2024.
