More than 49 million retired workers received a Social Security check in June 2023, and the vast majority of those individuals depend on monthly benefits to some degree, according to Gallup. For that reason, retired workers need to stay current on the program.
Social Security undergoes several changes on an annual basis, and understanding those changes can help beneficiaries better budget their money. Here are three Social Security changes retirees can expect in 2024.
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1. The earnings limits for beneficiaries under full retirement age will increase
Workers become eligible for retirement benefits at age 62 even if they are still working, but individuals who collect Social Security before full retirement age (FRA) will have some of their benefit temporarily withheld if their income exceeds certain thresholds. Those thresholds are known as the retirement earnings test exempt amounts.
There are two numbers to consider: The lower threshold applies to workers under FRA for the full year, and the higher threshold applies to workers who will reach FRA in the current year. Currently, workers under FRA in 2023 have $1 in benefits withheld for every $2 in income that exceeds the annual limit of $21,240. Similarly, workers who will attain FRA in 2023 have $1 in benefits withheld for every $3 in income that exceeds the annual limit of $56,520.
Those thresholds are updated each year based on changes in the national average wage index (NAWI), a metric that tracks changes in the wages paid to American workers. The Social Security Administration (SSA) will publish the finalized 2024 retirement earnings test exempt amounts in October 2023.
2. The maximum retired worker benefit will increase
The Social Security benefits formula is also adjusted each year to reflect changes in the NAWI. As a result, the maximum retired worker benefit typically increases from one year to the next. For example, the biggest Social Security payout is $4,555 per month in 2023, up from $4,194 per month in 2022.
The maximum retired worker benefit will likely increase again in 2024. The SSA will publish the updated amount in October 2023. However, the maximum retired worker benefit has increased at 3.1% annually over the last decade, so if the next increase falls precisely in line with that average, the biggest Social Security payout will clock in at $4,696 per month in 2024.
As a caveat, very few retired workers will qualify for the maximum retirement benefit. Doing so requires wages that exceed the maximum taxable earnings limit for at least 35 years, and only 6% of workers make that much money in any given year, according to the SSA.
3. Social Security benefits will get a modest cost-of-living adjustment
Social Security benefits get an annual cost-of-living adjustment (COLA) to protect the buying power of benefits from inflation. The annual COLA depends on how the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) changes in the third quarter from one year to the next. For context, the third quarter runs from July through September.
The COLA calculation works like this: The third quarter CPI-W from the current year is divided by the third quarter CPI-W from the prior year, and the percent increase (if any) becomes the COLA in the following year. For instance, the third quarter CPI-W increased 8.7% in 2022, so Social Security benefits got a monster 8.7% COLA in 2023 -- the largest raise for retired workers since 1982.
The SSA will publish the 2024 COLA once the third quarter CPI-W is finalized in October 2023, but the prevailing consensus among Social Security experts is that monthly benefits will get a more modest raise ranging from 2.6% to 3.3% next year. If that forecast comes to fruition, the average retired worker benefit -- which currently sits at $1,837.29 per month -- would clock in between $1,885.06 per month and $1,897.92 per month in 2024.
