The coming year has significant changes in store for Social Security, both for retirees collecting benefits and workers still paying into the program. The Social Security Administration (SSA) won’t confirm any changes until mid-October. However, President Joe Biden has made reforming the program a key component of his first term in office, and 2024 will almost certainly bring changes that impact both current and incoming beneficiaries.
If you plan to retire next year, those changes could affect your wallet. Here’s what you need to know.
The Senior Citizens League (TSCL) estimates the SSA will announce a 3.2% cost of living adjustment (COLA) to help retirees keep pace with rising prices.
That would increase the average monthly retiree benefit of $1,790 by $57.30. While that’s considerably less than the 8.7% raise beneficiaries got last year, it’s an improvement over 2.6%, which has been the average over the past 20 years.
The president doesn’t control COLAs. Annual benefit adjustments follow a formula mandated by Congress. But potential changes to that formula could more realistically address the cost increases that seniors cope with in retirement.
Biden has proposed using the Consumer Price Index for the Elderly (CPI-E) to gauge inflation and calculate benefit adjustments instead of the current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which omits several critical expenses common to retirees. According to the SSA, the change would increase annual COLAs by an average of 0.2 percentage points, although the change wouldn’t take effect until December 2025.
Currently, earned income up to $160,200 is subject to the 12.4% payroll tax that funds Social Security, split between employer and employee. That means more than 90% of workers pay payroll taxes on all their taxable income, but the highest earners are exempt from payroll taxation on anything over that amount.
Biden has proposed subjecting all income over $400,000 to payroll taxes and incrementally closing the “doughnut hole” between $160,200 and $400,000 over several years. It’s part of a plan to address a looming shortfall that will deplete trusts that fund the program in the next decade without increasing taxes on middle-class families.
“President Biden’s proposed changes to Social Security for 2024 are intended to strengthen the program’s long-term financial viability by increasing revenue through increased taxes on persons with higher earnings,” said Hassan Sanders, who works with Social Security recipients to afford supplemental insurance coverage as the founder of Diabetic Insurance Solutions.
Even if Biden’s more ambitious plan doesn’t go through, the maximum income cap will almost certainly climb to $167,700, meaning high earners will owe payroll taxes on at least $7,500 more of their income.
Biden has also proposed raising the primary insurance amount (PIA) by 1% per year from age 78 through 82 for a cumulative 5% increase. This would represent a significant departure from the program’s tradition.
COLAs raise benefits for recipients of all ages, but historically, the PIA has not increased with age. Recipients have always received an amount based on the age they start receiving benefits, according to their average indexed monthly earnings.
The proposed boost is meant to help older beneficiaries cope with common late-life cost increases, such as increased hospitalization or prescription drug expenses.
Currently, workers who spent at least 30 years toiling for low wages receive a maximum benefit of a paltry $1,033.50 per month. That’s far short of the federal individual poverty rate of $1,215. Biden has proposed raising the special minimum benefit to 125% of the federal poverty line.
The proposal is designed to ensure at least a basic subsistence income for the most vulnerable retirees who need it most.
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