There were some notable changes to Social Security this year. Here’s what you may have missed.
Although Social Security has been around for decades, the rules of the program evolve over time. That’s a good thing, because changes to Social Security can benefit retirees tremendously.
However, not every change Social Security goes through is positive. Here are three changes the program is undergoing in 2024 — for better or for worse.
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1. Social benefits were increased by 3.2%
Each year, Social Security benefits may be adjusted for the cost of living. The purpose of COLAs is to ensure that Social Security recipients can maintain their purchasing power as inflation increases the cost of living over time.
In 2024, Social Security benefits received a COLA of 3.2%, increasing the average monthly benefit from $1,848 at the end of 2023 to $1,907 at the beginning of 2024.
However, Social Security’s COLA for next year is expected to be lower. It’s too early to get a handle on that number yet, as COLAs are based on third-quarter inflation data. However, early estimates call for a COLA of 2.57% in 2025, which is significantly lower than the increase retirees received earlier this year.
The good thing about declining COLAs, however, is that they are a sign that inflation is cooling, so even if Social Security benefits won’t increase all that much in 2025, retirees can at least benefit in that their expenses shouldn’t rise as quickly as they have in recent years.
2. The income limit has been increased
Once you reach full retirement age, you no longer have to worry about the Social Security earnings limit. It is only if you work and receive benefits at the same time before you reach full retirement age that the earnings limit comes into play. Essentially, this limit determines how much you can earn before you risk having some of your Social Security benefits withheld.
In 2023, the income limit for retirees under full retirement age was $21,240. This year it rose to $22,320.
For retirees who have not yet reached full retirement age but will reach it before the end of the year, a different limit applies. In 2023, that higher limit was $56,520. This year, it is $59,520.
Wages above the income limit put seniors at risk of having some of their benefits withheld, so it’s important to know what that limit is. However, withheld benefits aren’t lost forever. They’ll be added back into seniors’ monthly Social Security checks once they reach full retirement age.
3. The wage cap has been increased
Higher earners do not necessarily have to pay social security contributions on their entire salary. Each year, the amount of salary that is taxed to finance the program is capped at a certain amount.
In 2023, the wage cap was $160,200. This year, however, it was raised to $168,600. Many Americans will not feel this pain because they pay Social Security taxes on all of their pay since it is below the cap. But the Social Security wage cap is also likely to rise in 2025, and higher earners should prepare for that.
Obviously, a lot has happened to Social Security since the beginning of 2024. The program will likely see some big changes in 2025 as well. It’s important that retirees and workers alike pay attention to Social Security updates so there are no unpleasant surprises.
