Social Security can make or break retirement for many people. In fact, around 21% of U.S. adults age 50 and older say they have no other retirement income outside of their benefits, according to a 2023 report from the Nationwide Retirement Institute.
For those relying heavily on Social Security, any changes to the program could have a major effect on retirement. As we get closer to 2024, it's time to start thinking about how next year's adjustments will affect your retirement -- and there's both good and bad news.
The good: You can work more without benefit reductions
You can continue working after taking Social Security, but depending on your age and how much you're earning from your job, your benefits could be reduced.
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The retirement earnings test is an income limit that determines how much (if any) of your benefits will be reduced. The more you earn over that limit, the less you'll receive per month from Social Security. The good news, though, is that these income limits are increasing in 2024, so you can earn more before your benefits are reduced.
To determine how your benefits will be affected, you'll first need to know your full retirement age (FRA). It will depend on your birth year, but it's age 67 for anyone born in 1960 or later. Depending on your FRA, there are two different income limits.
| Income Limit in 2024 | Income Limit in 2023 | |
|---|---|---|
| If you won't reach your FRA in 2024 | $22,320 | $21,240 |
| If you will reach your FRA in 2024 | $59,520 | $56,520 |
Source: Social Security Administration.
If you won't be reaching your FRA in 2024, your benefits will be reduced by $1 for every $2 you earn over $22,320 per year. If you will reach your FRA next year, you'll see a $1 reduction for every $3 you earn over $59,520 per year.
Once you reach your FRA, however, you'll no longer be subject to these limits. The Social Security Administration will also recalculate your benefit amount to account for any money that was withheld due to your income.
The bad: You'll receive a smaller COLA than in 2023
In 2023, beneficiaries received a historic 8.7% cost-of-living adjustment (COLA) -- the highest in roughly four decades. In 2024, however, you can expect to receive a much smaller 3.2% COLA.
The bad news is that your checks won't increase nearly as much as they did this year. But that can actually be a good thing in some ways. Because the COLA is based on changes in inflation, a smaller adjustment means that costs haven't increased as much this year compared to last year.
The good (and bad): The maximum benefit is increasing
In 2023, the maximum you could receive from Social Security was $4,555 per month. Starting next year, the max benefit is increasing to $4,873 per month. However, the downside is that it's becoming more difficult to achieve the max payments.
There are three requirements you'll need to meet to reach this benefit: Work for at least 35 years, delay claiming benefits until age 70, and consistently reach the wage cap.
The wage cap is the highest income subject to Social Security taxes. The more you earn up to this limit, the larger your benefit amount will be. The wage cap in 2023 was $160,200 per year, and in 2024, it will increase to $168,600 per year.
It's already tough to achieve the maximum benefit. But as the wage cap continues to increase year after year, it will only become more challenging to meet all three requirements.
Social Security is an integral source of income for millions of retirees, so it's a good idea to understand how these changes coming in 2024 will affect your monthly payments. By preparing for them now, you can avoid any surprises next year.
