Social Security undergoes several revisions each year to keep certain aspects of the program aligned with inflation and wages. The most highly anticipated of those annual revisions is the cost-of-living adjustment (COLA), and just one more data point is needed to finalize the calculation for 2024: September inflation.
The Labor Department is scheduled to announce that last data point on Thursday, Oct. 12, 2023, at 8:30 AM ET. Barring unforeseen circumstances, the Social Security Administration will issue a press release that same day detailing multiple major changes coming to Social Security in 2024, including the finalized COLA.
Here are the important details.
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Social Security benefits will get a cost-of-living adjustment
Since 1975, Social Security payments have received an annual cost-of-living adjustment (COLA) to protect the buying power of benefits from inflation. Those COLAs have been particularly important in recent years as rising prices have pummeled the U.S. economy in the wake of the pandemic, putting many Americans in a difficult financial situation.
Social Security COLAs are tied to inflation by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, the average CPI-W reading from July, August, and September (i.e., the third quarter) of any given year is compared to the average CPI-W reading from the same period in the previous year, and any percent increase becomes the COLA in the following year.
The CPI-W increased 8.7% year over year in the third quarter of 2022, so Social Security benefits got an 8.7% COLA in 2023. But retired workers are on pace for a much more modest benefit increase next year. While the 2024 COLA cannot be finalized without the September CPI-W reading, policy analyst Mary Johnson of The Senior Citizens League estimates that Social Security benefits will increase 3.2% next year. If she's correct, the average retired-worker benefit would increase from $1,840.27 per month in Aug. 2023 to $1,899.16 per month in Jan. 2024.
In the past, the Social Security Administration (SSA) has issued a press release detailing the official COLA for the following year shortly after the Labor Department published September inflation data. Assuming that trend persists this year, readers should expect an update on Oct. 12.
The retirement earnings test exempt amounts will increase
The retirement earnings test exempt amounts will be revised in 2024. For context, workers who claim Social Security before full retirement age (FRA) and continue working have a portion of their benefits temporarily withheld if their wages exceed certain thresholds. Those limits are called the retirement earnings test exempt amounts, and they are updated annually based on changes in the national average wage index.
The current retirement earnings test exempt amounts are $21,240 and $56,520. The lower threshold applies to workers who will not reach FRA during the year. They will see $1 in benefits withheld for every $2 in earnings that exceed $21,240. The higher threshold applies to workers who will reach FRA during the year, in which case $1 in benefits is withheld for every $3 in earnings that exceed $56,520.
The retirement earnings test exempt amounts tend to increase from one year to the next, and the revised thresholds for next year will be announced alongside the finalized 2024 COLA.
The maximum taxable earnings limit will increase
The Social Security program is primarily funded by a dedicated payroll tax. Employees contribute 6.2% of gross wages to the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds, and employers match that figure, bringing the total contribution to 12.4%.
The amount of income subject to the Social Security payroll tax is limited to $160,200 in 2023 under current law. Any earnings above that threshold are not taxed for the purpose of financing the OASDI Trust Funds. However, the taxable maximum is adjusted annually to account for changes in general wage levels. Social Security's Board of Trustee has already estimated that the taxable maximum will reach $167,700 next year, but readers can expect the finalized figure for 2024 in the press release to be issued Oct. 12.
The maximum Social Security benefit will increase
The Social Security benefits formula is adjusted each year to account for changes in wages across the economy. As a result, the maximum Social Security benefit for newly retired workers tends to increase from one year to the next. The biggest payout for workers who claim Social Security at FRA is currently $3,627 per month, but that figure will likely rise next year, and details should be forthcoming on Oct. 12.
