Two major changes to Social Security coming in 2024 may surprise most Americans | ET REALITY

[ad_1]

In October, the Social Security Administration will issue a press release detailing important changes to the Social Security program in 2024. A similar announcement is made around the same time each year, because certain aspects of the program are adjusted annually to take into account changes in salaries. and inflation.

Still, a recent survey by the Nationwide Retirement Institute suggests that some of the revisions could surprise many Americans. The survey included 1,806 adults across four generations, and the implied knowledge gaps, assuming they apply to the general population, are somewhat concerning given the important role Social Security plays in old age.

Here are two big changes to Social Security that could surprise most Americans next year.

A retired couple got into a serious argument.

Image source: Getty Images.

Social Security benefits will get a cost of living adjustment (COLA)

One of the biggest knowledge gaps identified by the Nationwide report was the relationship between Social Security benefits and inflation. Among survey participants, 70% incorrectly agreed with the following statement: “Social Security is not protected against inflation.”

Fortunately, Social Security payments receive an annual cost-of-living adjustment (COLA) to defend against the effects of rising prices. Profits would quickly lose purchasing power without that guarantee. For example, the average price of bread increased 35% over the past decade, while the average price of milk increased 17% during the same period, according to the Department of Labor.

The annual COLAs are based on inflation data from the third quarter, which runs from July to September, so the figures needed to calculate the 2024 cost of living increase are not yet available. However, policy analyst Mary Johnson of The Senior Citizens League says Social Security benefits are on track to get a 3% COLA next year. Morningstar economist Preston Caldwell and several other Social Security experts echoed that forecast.

What does a 3% COLA mean? The average monthly benefit for a retired worker was $1,838.58 in July 2023. A 3% COLA would increase that figure to $1,893.74 in January 2024, meaning the average benefit for a retired worker would increase by $55, 16 per month, or $661.92 per year.

The Social Security Administration (SSA) will likely issue its press release detailing the official 2024 COLA shortly after the Department of Labor releases September inflation data on October 12.

Some workers will owe Social Security taxes on more income

The largest knowledge gap identified by Nationwide’s report involves the portion of income subject to the Social Security payroll tax. About 74% of adults surveyed incorrectly agreed with the following statement: “Workers pay Social Security taxes on all of their income.”

Social Security taxable income is actually limited under current law, although many politicians (including President Joe Biden) want to change that because workers with income above the income limit effectively pay taxes at a lower rate. .

Currently, the maximum taxable earnings limit is $160,200. But the income limit is tied to the national average wage index, so it tends to increase from year to year. The chart below shows how the maximum taxable earnings limit has changed over the last five years.

Year

Maximum limit of taxable profits

2019

$132,900

2020

$137,700

2021

$142,800

2022

$147,000

2023

$160,200

Data source: Social Security Administration.

SSA’s October press release will provide the specific maximum taxable earnings limit for 2024, but the Board of Trustees believes the income limit will reach $167,700.

In that scenario, some workers will owe Social Security taxes on an additional $7,500 in earnings next year. Most workers pay a 6.2% tax, which means an additional $465 in taxes for workers with incomes above the income limit.

Self-employed workers are the exception. They are taxed at 12.4%, which means an additional $930 in taxes for self-employed workers with income that exceeds the income limit.

Leave a Comment