The most important day of the year for Social Security's nearly 67 million beneficiaries has come and gone. This past week, on Oct. 12, 2023, the Social Security Administration (SSA) released the program's "Fact Sheet" for 2024, which outlines a host of changes that impact everything from the checks beneficiaries receive to the payroll taxes working Americans will owe.
Considering how vital Social Security is in helping seniors make ends meet during retirement, it pays to know how this dynamic program is changing.
What follows are the seven must-know changes to Social Security in 2024.
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1. An above-average cost-of-living adjustment (COLA) is on the way
The much-anticipated announcement this past week was the cost-of-living adjustment (COLA) for 2024. COLA is the mechanism by which the SSA adjusts benefits most years to account for the effects of inflation. In other words, if the price for a broad basket of goods and services increases, Social Security checks should, ideally, rise by the same amount to ensure no loss of purchasing power.
In 2024, the program's 66.7 million beneficiaries will receive a 3.2% COLA. Compared to the average annual benefit bump of 2.6% over the past 20 years, a 3.2% increase is above average. The typical retired worker can expect their monthly check to rise by $59 to $1,907. Meanwhile, workers with disabilities and survivors of deceased beneficiaries should see their monthly payouts increase by an average of $48 and $47, respectively.
Nevertheless, retirees continue to receive the short end of the stick when it comes to annual COLA releases. Due to inherent flaws with the program's inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), important expenses, such as shelter and medical care, are being underweighted. As a result, the purchasing power of Social Security income has plunged by 36% since January 2000.
2. High-earning workers will owe more in 2024
A second near-annual Social Security change worth noting is the increase in the maximum taxable earnings cap for 2024.
The 12.4% payroll tax on earned income (wages and salary, but not investment income) accounts for approximately 90% of the revenue the SSA collects each year. This year, all earned income between $0.01 and $160,200 is subject to the payroll tax, while any earned income above this upper bound (known as the "maximum taxable earnings cap") is exempt from the payroll tax.
Next year, the maximum taxable earnings cap will rise by $8,400 to $168,600. Since 94% of working Americans are expected to earn less than $160,200 this year and are already paying into the program with every dollar they earn, increasing this cap only affects about 6% of high-income workers.
Depending on whether these high earners are self-employed (and thus owe the full 12.4% payroll tax) or are employees (payroll taxes are split with an employer, 6.2% each), payroll tax liability could increase by as much as $1,041.60 for the self-employed or $520.80 for employees in 2024.
3. A larger maximum monthly payout awaits the rich
The trade-off for high earners is that their potential reward during retirement could be a bit juicier. More specifically, the maximum monthly payout at full retirement age -- the age at which you become eligible to receive 100% of your retired worker benefit -- is set to climb once again, in 2024.
This year, the most a beneficiary could expect to receive each month at their full retirement age is $3,627. In 2024, workers retiring at their full retirement age can take home up to $3,822 per month, which represents a hearty $195/month boost.
Only 2% of Social Security beneficiaries meet the qualifications to receive this maximum monthly payout, which includes:
- Working at least 35 years.
- Waiting until full retirement age to claim benefits.
- Achieving or surpassing the maximum taxable earnings cap in all 35 years is taken into consideration by the SSA when calculating a beneficiaries' monthly benefit.
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4. Withholding thresholds for early filers are climbing
As of the end of 2021, 65% of retired workers had claimed their payout prior to reaching full retirement age. Early filers receive a permanently reduced monthly benefit, and they may be exposed to other penalties, such as the retirement earnings test.
The retirement earnings test allows the SSA to withhold some or all of a retiree's benefits if they earn above preset thresholds. These thresholds differ dramatically depending on whether or not you'll hit your full retirement age in the upcoming year.
For example, early filers who won't hit their full retirement age this year can have $1 in benefits withheld by the SSA for every $2 in earned income above $21,240 (this works out to an average of $1,770 per month). In 2024, the withholding threshold for beneficiaries who won't reach their full retirement age is climbing to $22,320 ($1,860 per month). In other words, early filers will be able to earn a bit more before having some or all of their benefits withheld.
For early filers set to reach their full retirement age in 2023, the SSA can withhold $1 in benefits for every $3 in earned income beyond $56,520 ($4,710 per month). As of 2024, this withholding threshold is rising to $59,520 ($4,960 per month).
Note that the retirement earnings test is no longer applicable once you reach your full retirement age, regardless of when you claimed your benefit.
5. Income thresholds for workers with disabilities are increasing
Early filers aren't the only group of Social Security beneficiaries who'll be allowed to earn more without having their benefits withheld. The program's nearly 7.5 million workers with disabilities will be able to generate more monthly income next year without seeing their long-term benefits stopped.
For instance, non-blind workers with disabilities are allowed to generate $1,470 per month in earned income this year without having their Social Security disability income halted. Next year, this disability income threshold for the non-blind is increasing to $1,550 per month.
For blind workers with disabilities, the allowable income threshold is considerably higher: $2,460 per month in 2023. Beginning in 2024, blind workers with disabilities can earn $2,590 each month without having to worry about their disability benefits being stopped.
6. It'll be incrementally tougher to qualify for a Social Security benefit
Despite what you may have read on the internet or heard in passing, Social Security benefits aren't a birthright for being an American citizen. The vast majority of Americans will earn their right to receive a retired-worker benefit, as well as disability and/or survivor benefit coverage, through their work history.
To qualify for a Social Security benefit, workers must receive 40 lifetime work credits. These credits are doled out based on your earned income, and no more than four credits can be earned in a given year.
The good news is the bar is set quite low to qualify for a Social Security retirement benefit. In 2023, each work credit equates to $1,640 in earned income. In other words, $6,560 (4 X $1,640) in earned income will max out the four credits that can be received this year.
In 2024, it'll be slightly tougher to earn work credits. Beginning next year, it'll take $1,730 in earned income to qualify for a single work credit and $6,920 to receive the maximum of four for the year.
Taxing Social Security benefits is becoming an increasingly important revenue stream for America's top retirement program. US Old-Age, Survivors, and Disability Insurance Trust Fund Income from Taxation of Benefits Receipts data by YCharts.
7. There's a greater likelihood of being taxed on some portion of your Social Security benefits
The seventh and final must-know Social Security change in 2024 isn't something you're going to find on the SSA's Fact Sheet. Rather, it's part of an ongoing shift that impacts more retirees each year.
In 1983, the last major overhaul of Social Security was signed into law. In addition to gradually increasing payroll taxation and the full retirement age, the Social Security Amendments of 1983 introduced the taxation of benefits. This law allows up to 50% of Social Security benefits to be taxed at federal rates when a person's provisional income surpasses $25,000, or $32,000 for couples filing jointly.
In 1993, a second taxation tier was added. Single filers whose provisional income tops $34,000 or couples filing jointly with provisional income above $44,000 can see up to 85% of their benefits taxed at federal rates.
Although these provisional income thresholds were set 40 and 30 years ago, respectively, they've not once been adjusted for inflation. As COLAs have increased payouts over time, the likelihood of retirees having at least some portion of their Social Security check exposed to taxation has steadily grown. With payouts set to jump another 3.2% in 2024, it's pretty safe to assume that more recipients than ever will owe tax on their benefits.
