Social Security is a major source of income for millions of older adults, and many people rely on their benefits heavily in retirement. In fact, around 1 in 5 adults age 50 and older have no other source of retirement income outside of Social Security, according to a 2023 report from the Nationwide Retirement Institute.
Next year will bring good news for retirees, as benefits will be going up beginning in January 2024. Plus there are a few other big changes on the horizon next year.
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Retirees are getting a raise in 2024
Most years, retirees will receive a cost-of-living adjustment (COLA) to help Social Security maintain its buying power. In 2023, beneficiaries earned a whopping 8.7% COLA -- the highest in roughly four decades. Next year, however, the COLA will be substantially smaller at just 3.2%.
While that may not seem like a good thing on the surface, these adjustments are tied to inflation. A higher COLA means costs have risen significantly, so a smaller adjustment next year suggests that inflation has slowed in 2023 compared to 2022.
That's good news for retirees, as lower costs will probably have more of an impact on your retirement than a larger COLA.
The new COLA will take effect in January 2024, and the average retired worker will see his or her benefit amount increase from $1,848 per month to $1,907 per month -- a difference of $59 per month.
Other Social Security changes coming next year
A benefit increase is only one change retirees will see in 2024. A few other changes include a higher maximum benefit amount, a higher maximum taxable earnings limit, and benefit increases for other Social Security recipients.
- Higher max benefit: In 2023, the most you can receive from Social Security is $4,555 per month. Starting in 2024, though, that maximum will be increasing to $4,873 per month -- a whopping $318 monthly difference.
- Higher maximum taxable earnings limit: The maximum taxable earnings limit is the highest income subject to Social Security taxes. The closer you get to this limit, the more you'll receive in benefits each month. It's also a crucial figure if you're aiming for the max payments, as you'll need to consistently reach this limit to collect as much as possible each month. In 2024, it will increase to $168,600 per year -- up from $160,200 per year in 2023.
- Higher payments for other beneficiaries: Retirees aren't the only ones receiving the COLA in 2024. All beneficiaries -- including disabled workers, widow(er)s, and spouses collecting spousal benefits -- will receive higher payments starting next year.
Another change coming in 2024 is higher earnings test limits for workers. If you continue working after claiming Social Security and haven't yet reached your full retirement age (FRA), your benefits could be reduced depending on your income.
| Benefit Reductions | 2024 Income Limit | 2023 Income Limit | |
|---|---|---|---|
| If you won't reach your FRA in 2024 | Payments will be reduced by $1 for every $2 over the limit | $22,320 per year | $21,240 per year |
| If you will reach your FRA in 2024 | Payments will be reduced by $1 for every $3 over the limit | $59,520 per year | $56,520 per year |
Source: Social Security Administration
Higher income limits mean workers will be able to earn more in 2024 without seeing benefit reductions, which could result in higher payments each month.
Social Security is a lifeline for many older adults, and annual benefit increases can go a long way. When you know what to expect in 2024, it will be easier to start preparing your budget accordingly.
