Three Major Social Security Updates to Watch for in October

Key Points

• The Social Security Administration usually rolls out important program changes in October.

• By the middle of the month, retirees should have a clearer idea of the cost-of-living adjustment ahead.

• Workers can also expect an update that affects them directly.

October tends to be an eventful month for many reasons. The weather cools off, the leaves begin to change, and pumpkin spice seems to take over everything.

It is also an important month for Social Security. The Social Security Administration is expected to unveil three major updates to the program, and here is what to watch for.

1. The next cost-of-living adjustment

Each year, Social Security benefits can receive a cost-of-living adjustment, or COLA, based on inflation. Benefits recently rose 2.8%, but many retirees are hoping for a larger increase next time.

Current projections point to a COLA in the 3.5% to 3.6% range. That estimate could still move up or down depending on the latest Consumer Price Index data.

One thing to keep in mind is that Medicare enrollees pay Part B premiums out of their Social Security checks. If Part B costs rise sharply, that could reduce the benefit of an otherwise strong COLA.

2. New earnings-test thresholds

The earnings test applies to people who work while collecting Social Security before reaching full retirement age. Work is allowed, but once income passes a certain limit, some benefits can be temporarily withheld.

Under the current rules, recipients face a reduction of $1 in benefits for every $2 earned above $24,480 if they will not reach full retirement age by the end of the year. If they do reach full retirement age during the year, the threshold rises to $65,160, and then $1 is withheld for every $3 earned above that amount.

These limits usually rise alongside wage growth. So if you are working while collecting benefits and are affected by the earnings test, you may be able to earn more before it starts affecting your Social Security payments.

3. A higher wage cap

Social Security is funded largely through payroll taxes. Workers pay 6.2%, and employers match that contribution.

Each year, the government sets a wage cap that limits how much income is subject to Social Security taxes. The current cap is $184,500, and the next one is likely to be higher.

That is good news for people who benefit from a higher earnings-test threshold, but it is less welcome for high earners. Anyone making more than $184,500 should expect a larger tax bill when the new cap takes effect.

In all, several important Social Security changes are on the way. Keep an eye out for the major announcement so you do not miss the details.