Social Security is a hot-button issue in today’s political climate. Without significant reform, the program may face the difficult choice of cutting benefits for millions of seniors who rely on it to make ends meet. Additionally, many Americans who have already paid into the program could be affected.
While major overhauls to Social Security are unlikely before the end of 2024, the program has some built-in changes that take effect at the start of each year. If you’re not paying attention, these changes might catch you off guard. Given the importance of Social Security for both retirees and workers, staying informed is crucial. Here are three significant Social Security changes coming in January.
Social Security annual cost-of-living adjustment (COLA)
One of the most anticipated changes is the annual cost-of-living adjustment (COLA). This adjustment increases the monthly benefits that retirees receive, helping them keep up with inflation and rising costs of living.
By staying updated on these changes, you can better prepare for your financial future and make informed decisions. Whether you’re already retired or still working, understanding the nuances of Social Security is essential.
- Annual COLA Increase: Ensures benefits keep pace with inflation.
- Benefit Adjustments: Potential changes that could impact your monthly income.
- Stay Informed: Knowledge is power when it comes to your financial security.
Stay tuned to our blog for more updates and in-depth analyses on Social Security and other financial planning topics. Your future depends on staying informed and prepared.
The way the Social Security Administration calculates the Cost of Living Adjustment (COLA) is based on the growth of a subset of the Consumer Price Index (CPI) during the third quarter of each year. The final numbers for the COLA won’t be available until October, when the Bureau of Labor Statistics releases the inflation data for September.
Inflation Trends and COLA Forecast
Inflation has significantly slowed down from the high levels we experienced starting in 2021. The Senior Citizens League currently forecasts a COLA of 2.6%. While this is a marked decrease from the past few years, a slow and steady inflation rate is generally more beneficial for the purchasing power of Social Security benefits compared to hyperinflation. Notably, this 2.6% increase is above the Federal Reserve’s long-term inflation target of 2%, suggesting that the 2025 raise could leave seniors in a better financial position.
Full Retirement Age is Rising
Seniors who are planning to claim Social Security benefits at their full retirement age might have to wait longer than they expect. We’re currently in a phase where the full retirement age is increasing each year. This means that those waiting to receive their full benefits will need to stay informed about these changes to plan their retirement effectively.
In 1983, Congress enacted a law that gradually increases the full retirement age to 67. For instance, individuals born in 1954 reached their full retirement age at 66. However, for those born after 1954, the age increases by two months each year until it caps at 67 for anyone born in 1960 or later.
Understanding Full Retirement Age
As an example, in 2025, individuals born in 1958 will reach their full retirement age at 66 years and 8 months. Similarly, those born in early 1959 will hit their full retirement age at 66 years and 10 months.
Why Full Retirement Age Matters
The concept of full retirement age is crucial because it significantly affects your monthly social security benefits. Even if you choose not to wait until your full retirement age to claim benefits, or if you decide to delay claiming until age 70, your full retirement age still plays a pivotal role. It determines the magnitude of your penalty for claiming benefits early or the amount of your delayed retirement credit for claiming later.
- Claiming Early: If you claim benefits before your full retirement age, you will incur a penalty that reduces your monthly benefits.
- Claiming Later: Delaying your claim past your full retirement age can increase your monthly benefits through delayed retirement credits.
Therefore, understanding and being aware of your full retirement age is essential for everyone planning their retirement.
When it comes to Social Security, most individuals are familiar with the standard tax rate of 6.2% deducted from their wages. Employers match this amount, resulting in a total contribution of approximately 12.4% of your paycheck. However, if you’re a high earner, you might not be paying Social Security taxes on your entire income.