Tens of millions of seniors rely on Social Security to make ends meet. About 88% of retirees said Social Security is a significant source of income in retirement, with a rising portion of those saying it was a major source, according to an annual Gallup poll.
Unfortunately, the future of Social Security is becoming increasingly uncertain. The most recent Social Security Trustee's Report estimates the fund's cash reserves will run out by 2034, a year earlier than previously expected. That's left many in Washington pushing for reforms to help extend that timeline.
With the current divide in Congress, it's unlikely we'll see any major Social Security reforms before the end of the year. But that doesn't mean seniors won't see major changes to their Social Security benefits next year. Here are three huge changes you need to know going into 2024.
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1. Payment amounts will rise for those already collecting benefits
Every year the Social Security Administration gives beneficiaries a cost-of-living adjustment (COLA). The adjustment is based on third-quarter inflation data, so we already know how much benefits checks will increase next year: 3.2%.
That COLA may be a disappointment compared to recent increases of 8.7% in 2023 and 5.9% in 2022. But a lower COLA is a symptom of the rate of inflation slowing down. That's actually great news for retirees. It means your expenses aren't rising as quickly, which can help your other retirement savings last longer.
What's more, it's great news for the Social Security program as a whole. The Trustee report based its estimate that it would deplete its cash reserves on a COLA between 3.1% and 4% this year. The fact that it came in on the lower end could mean an improved outlook for the program next year, especially if inflation continues to go down.
2. Retirees reaching full retirement age might have to wait a little longer to get their full benefits
Congress reformed Social Security 40 years ago, and that's still having an impact today. Specifically, retirees born in 1957 will reach full retirement age (FRA) at 66 years and 6 months. Those born in 1958 will have to wait two extra months until they reach 66 years and 8 months. (Sorry, January birthdays.)
Full retirement age is continuing to march higher every year, and it'll continue to do so for those reaching FRA for a couple more years. It won't max out until reaching age 67 for those born in 1960 or later. That is unless Congress makes a change raising the full retirement age further.
Full retirement age is the age at which you become eligible to receive your primary insurance amount. You can, however, claim as early as 62, or delay as long as you like. If you delay your benefit, you'll earn an 8% bonus on your monthly benefit for each year you delay beyond your full retirement age. But those delayed retirement credits, as they're called, max out at age 70.
That means your full retirement age has a significant impact on how much your benefits check is regardless of when you claim. Someone born in 1957 who opts to delay until their 70th birthday will receive a 28% increase on their primary insurance amount for delaying 3.5 years. But those born in 1960 or later can only get up to three years (24%) worth of credits.
3. Early filers who are still working will get to keep more of their benefits
One of the challenges for those in their 60s who continue to work while collecting Social Security is the earnings test. The Social Security earnings test will deduct some of your benefits check if you earn over a certain amount in wages in a year. Workers will see a $1 reduction in their annual benefits for every $2 they earn over the limit if they're younger than their full retirement age.
For 2023, the earnings test limit was $21,240. Workers in 2024 will be able to earn a bit more: $22,320. That's a 5% bump, which is faster than the current rate of inflation. So, you could experience real wage growth without having to forego any of your Social Security benefits next year.
It's important to note that if the government reduces your benefits check due to the earnings test, it's typically not lost for good. The government treats each month's worth of foregone benefits due to the earnings test as if you delayed claiming Social Security by a month. Once you reach your full retirement age, your benefits get an adjustment for the impact of the earnings test, and you'll get more money in your checks at that point as a result.
Stay up to date on Social Security
Social Security is currently under a lot of scrutiny in Washington as politicians look to keep the program from becoming insolvent and forcing a benefits cut in the future.
If you rely on the program to make ends meet in your retirement budget or you're planning for it to be a major source of income in your golden years, you need to stay up to date on the program. It has a lot of built-in changes that automatically happen every year. The three above could be huge for anyone counting on Social Security in 2024.
