Social Security benefits are a key source of income in retirement, and they tend to become increasingly important over time as beneficiaries spend down the balance of 401(k) plans, IRAs, and other accounts. For that reason, retired workers need to stay informed about any changes that could impact their benefits.
Read on to learn about three big changes to Social Security that will take effect in 2024.
Image source: Getty Images.
1. Social Security benefits will get a modest cost-of-living increase
Social Security benefits will get a 3.2% cost-of-living adjustment (COLA) in 2024 to account for rising prices across the economy. Retired workers, many of whom feel Congress should do more to protect benefits from inflation, may be disappointed by that figure after receiving COLAs of 8.7% in 2023 and 5.9% in 2022. In other words, Social Security payouts will increase next year, but not as much as they did in the two preceding years.
However, a smaller cost-of-living increase in 2024 means inflation is slowing and there is a silver lining to that trend. The Social Security trustees assumed the 2024 COLA would range from 3.1% to 4% in their most recent financial assessment. Anything above that range could have accelerated the timeline to trust fund depletion, meaning a bigger COLA could have brought possible benefit cuts even closer.
The Social Security Administration says the average retiree will get an additional $59 per month after the 3.2% COLA is applied in 2024, but individualized COLA notices will be mailed out during December. Alternatively, retirees can review their updated benefit amount through their My Social Security account starting in early December.
One unfortunate consequence of the cost-of-living increase is that more retired workers may owe taxes on Social Security benefits.
2. The maximum retired worker benefit for new beneficiaries will increase
The Social Security Administration indexes benefit payments to the national average wage index to account for living standard increases that occur over time. That means the maximum Social Security payout for newly awarded beneficiaries tends to rise each year. For instance, the maximum payout at full retirement age (FRA) will be $3,822 per month in 2024, up from $3,627 per month in 2023.
The table below shows the maximum monthly retired worker benefit at different ages in 2024.
|
Age |
Maximum Retired Worker Benefit in 2024 |
|---|---|
|
62 |
$2,710 |
|
65 |
$3,426 |
|
66 |
$3,652 |
|
FRA |
$3,822 |
|
67 |
$3,911 |
|
70 |
$4,873 |
Data source: Social Security Administration.
Readers will spot an important lesson buried in that table. While workers are entitled to retirement benefits at age 62, delaying Social Security makes the payout incrementally larger. Indeed, the maximum retired worker benefit at age 70 is about 27% larger than the maximum benefit at FRA and 80% greater than the maximum benefit at age 62.
3. The income limits for workers receiving Social Security retirement benefits will increase
As mentioned above, workers are entitled to retirement benefits at age 62, but those that claim before FRA and continue working will have some of their Social Security check temporarily withheld if their income exceeds certain limits. Those limits, referred to as the retirement earnings test exempt amounts, are adjusted each year based on changes in general wage levels.
Here are the retirement earnings test exempt amounts for 2024:
- Lower limit: $22,320 per year (or $1,860 per month), up from $21,240 per year (or $1,770 per month) in 2023.
- Upper limit: $59,520 per year (or $4,960 per month), up from $56,520 per year (or $4,710 per month) in 2023.
The lower limit applies workers under FRA for the full year, such that $1 in benefits will be withheld for every $2 in earnings that exceed $22,320 in 2024. The higher limit applies to workers that reach FRA during the year, such that $1 in benefits will be withheld for every $3 in earnings that exceed $59,520 in 2024.
Retirees should be clear on two points: First, the retirement earnings test exempt amounts no longer matter once a worker reaches FRA. At that point, Social Security benefits will be paid in full without regard for other income. Second, workers who have benefits withheld will be compensated with a bigger Social Security check once they reach FRA. Those beneficiaries will recoup most or all of the "lost" income over a normal life span, according to the Social Security Administration.
