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Social Security is a vital source of income for millions of Americans. The Social Security program undergoes annual adjustments to remain responsive to economic changes and demographic trends. In 2024, several key changes will impact beneficiaries and workers who pay into the system. Let’s explore these updates and their effects on your finances.
Social Security benefits will see a 3.2% increase in 2024 due to the Cost-of-Living Adjustment (COLA). This adjustment follows an unusually high increase of 8.7% in 2023, driven by a spike in inflation following economic disruptions related to the COVID-19 pandemic and other global factors.
This increase means beneficiaries will see their monthly benefits rise. For example, let’s consider John, who retired in 2023 with a monthly benefit of $2,000. With the 8.7% COLA in 2023, his benefit increased by $174 to $2,174. In 2024, the 3.2% COLA will add another $70, bringing his monthly total to $2,244.
Fun Fact- While the 2024 increase is lower than in 2023, it's still above the historical average COLA of 2.6% over the past two decades.
What is COLA?
The Cost-of-Living Adjustment is designed to counteract inflation's effect on the purchasing power of Social Security and Supplemental Security Income (SSI) benefits.
Basis of Calculation
COLA calculations are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the previous year's third quarter to the current year's third quarter.
Why the Decrease?
The reduction in the COLA rate from 2023’s 8.7% to 2024’s 3.2% is due to a stabilization of inflation rates after the economic volatility of previous years.
The maximum amount of earnings subject to Social Security tax, known as the wage base, has increased to $168,600 in 2024, up from $160,200 in 2023. This adjustment means a higher portion of your income will be taxed for Social Security. High earners who exceed this limit will not have Social Security taxes withheld from their income that surpasses this threshold.
For instance, Sarah, with an annual salary of $180,000, will now have taxes applied to $168,600 of her income, compared to $160,200 the previous year.
Adjustments such as the COLA and tax limit increases are crucial for maintaining the program’s health.
Maximum Benefits: The maximum Social Security benefit for workers retiring at full retirement age will rise to $3,822 in 2024 from $3,627 in 2023.
Earnings Limit Changes: The earnings limit for workers who haven't reached full retirement age and those reaching it in 2024 will also be adjusted for inflation.
In the 2024 presidential campaign, President Joe Biden focused on policies related to Social Security, positioning these as counterpoints to suggestions for benefit cuts and age increases. His campaign advocated for the financial health of Social Security, proposing to raise the income cap on which taxes are levied, thus increasing contributions from high earners. This proposal aims to strengthen Social Security's finances and as a way to protect the program from future shortfalls. Biden also proposes to increase the Social Security Administration's budget, intending to improve service quality and system sustainability. His stance on Social Security is integral to his campaign, emphasizing security and stability for beneficiaries amidst political debates over the program’s future.
These updates reflect ongoing efforts to adapt the Social Security system to current economic conditions, ensuring it supports retirees and other beneficiaries. All Social Security recipients and contributors should stay informed about these changes, which can significantly impact their financial planning. For the most accurate and personalized information, visiting the Social Security Administration's official website at www.ssa.gov is highly recommended.
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