How Social Security may be changing for next year
How is the Social Security COLA calculated, and why might the current projection for 2025 change?
The Social Security cost-of-living adjustment (COLA) is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The process involves taking the CPI-W for the third quarter of the current year and dividing it by the CPI-W for the third quarter of the previous year. The percentage increase becomes the COLA for the following year.
The current projection for the 2025 Social Security COLA is 2.66%, according to the Senior Citizens League. However, this projection might change because it is based on estimated inflation data from the first few months of the year. The official COLA calculation uses third-quarter data from July to September, so the estimate is subject to change as more data becomes available. Inflation has consistently topped expectations, causing the estimate to be revised higher multiple times. Factors such as changes in consumer spending patterns, economic fluctuations, and government policies can also impact the COLA projection.
What was the increase in the Social Security wage cap from 2023 to 2024, and what might influence further changes to the cap in the future?
The increase in the Social Security wage cap from 2023 to 2024 was $8,400, raising the cap to $168,600. The wage cap is influenced by changes in the National Average Wage Index, which adjusts the cap to keep pace with inflation. However, some lawmakers have proposed raising the wage cap more significantly, such as President Biden's proposal to tax earnings over $400,000 for Social Security purposes. Future changes to the cap will depend on economic developments, policy proposals, and decisions made by Congress.
What changes occurred in 2024 regarding the qualification for Social Security benefits in terms of work credits?
In 2024, the value of a work credit for Social Security benefits increased from $1,640 to $1,730. To qualify for Social Security benefits, a worker needs to earn 40 work credits in their lifetime, with a maximum of four credits per year. This change makes it slightly more challenging for workers to qualify for Social Security benefits based on the work credit requirement.