Sometimes, even a program that's been around for decades, like Social Security, can change from one year to the next. And it's important to stay apprised of those changes, whether you're someone who's getting benefits or you're someone whose wages are being taxed to fund the program. With that in mind, here are a few major Social Security changes that have taken place this year.
1. Benefits went up
Social Security benefits are eligible for an annual cost-of-living adjustment (COLA). The purpose of COLAs is to help ensure that seniors are able to retain their buying power as inflation makes life more expensive.
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At the start of 2024, Social Security recipients saw their benefits rise 3.2%. But based on the inflation data we have so far this year, it's looking like 2025's COLA is going to be a lot smaller. Initial projections are calling for just a 1.75% boost in benefits.
As such, if you have extra money from this year's Social Security raise on hand, you may want to consider banking it in case next year's COLA leaves much to be desired. But also, don't read too much into that 1.75% estimate, as it's very premature. We won't be able to calculate Social Security's upcoming COLA until third-quarter inflation data becomes available.
2. The earnings-test limit rose
Social Security allows recipients to earn income from a job and also collect benefits at the same time. If you do so before reaching full retirement age (FRA), too much income from a job could result in withheld benefits. So, it's important to be mindful of the earnings-test limits.
Those limits change from year to year, but in 2024, the base limit is $22,320, up from $21,240 in 2023. Beyond that, you'll have $1 in Social Security withheld for every $2 of income from a job.
If you're working before having reached FRA but you'll also be reaching FRA later on in the year, the earnings-test limit is higher. In that case, you can earn up to $59,520, up from $56,520 in 2023, without risking withheld benefits. Beyond that, you'll have $1 in Social Security withheld for every $3 of income from a job.
The benefits you have withheld will not be lost forever. Once FRA arrives, you'll have that money added back into your monthly Social Security payments.
But remember, claiming Social Security ahead of FRA means reducing your monthly benefit permanently. If you're going to take that hit, you may want to make sure to keep your earnings to a point where you don't have benefits withheld.
3. Earning work credits got harder
To qualify for Social Security in retirement, you need to accumulate a total of 40 lifetime work credits at a maximum of four per year. But the value of a single work credit can change over time.
In 2024, one work credit is worth $1,730 in earnings, up from $1,640 in 2023. If you work full-time, chances are, you don't have to worry about earning a high enough wage in 2024 to get your four Social Security credits. Rather, it's if you're working part-time that you need to be mindful.
4. The wage cap increased
Social Security's primary revenue source is the money workers contribute in the form of payroll taxes. Each year, a wage cap is set that determines how much income gets taxed to fund Social Security.
In 2024, the wage cap is $168,600, up from $160,200 in 2023. So if you're a higher earner, you might pay more into Social Security this year than last.
It's also worth mentioning that lawmakers have proposed lifting or eliminating the wage cap so that all workers pay into Social Security on all of their income. If you don't like the idea of paying taxes on an extra $8,400, think about it this way -- things could potentially get (much) worse, so be thankful you're only looking at this year's change.
It's pretty amazing to think about the various ways Social Security has evolved since the program's inception. Make a point to keep tabs on Social Security changes, whether you're a recipient of benefits now or hope to be one in the future. Having the right information is key to making smart financial decisions as either a member of the workforce or a near or current retiree.
