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Social Security Changes
In 2014, the average monthly Social Security payment will increase by due to an increase for cost of living. The 1.5% cost-of-living (COLA) adjustment for 2014 is one of the smallest increases ever. In fact, since 1975 there have only been seven increases less than 2%. It’s no surprise that four of these have occurred in the past five years with last year’s COLA increase coming in at just 1.7%. This year the increase is even smaller.
Because the COLA increase is tied to the Federal government’s Consumer Price Index (CPI), benefit increases are low when the government’s official numbers are low. The Feds looked at CPI figures from July to September of 2013 in order to determine the 2014 numbers. Because these numbers currently look tame, 2014′s increase was abnormally low.
How do these changes impact seniors?
Because seniors spend more on health care than the general population, this increase has a much greater impact for seniors. Moreover, the 2.4% increase in health care costs from September 2012 to September 2013 was 62.5% higher than the 2014 COLA increase in Social Security benefits. As medical costs continue to soar, COLA will fail to keep up with these increases, leaving fewer dollars for seniors to spend. That is why it is absolutely vital to have multiple income sources in retirement.
Other notable changes in Social Security in 2014
In 2014, the maximum monthly Social Security benefit limit will increase to ,642, up from the current cap of ,533.
The Social Security annual earnings limit will increase in 2014. For people attaining normal retirement age after 2014, the annual exempt amount in 2014 is ,480. For those reaching normal retirement age in 2014, the annual exempt amount is ,400.
The wage base for Social Security taxes is also rising for those on the job. American workers will pay a 6.2% payroll tax on the initial 4,000 of their incomes in 2014. It is estimated that 6% of working Americans will pay higher Social Security taxes next year.
In addition to the tax changes in Social Security, the IRS has also made some minor changes to Retirement Plan limitations for 2014.