Social Security can make or break retirement for many people, and any adjustments to the program could affect your monthly income.
Starting in January, there will be a few changes coming to your benefits. Some of them will increase the amount you receive each month, while others may not be as positive. If you're depending on Social Security in any way, it pays to know what to expect heading into the new year. Here are three big changes to keep on your radar.
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1. Expect the new COLA to take effect
The annual cost-of-living adjustment (COLA) aims to help Social Security keep up with inflation. In 2023, beneficiaries received a massive 8.7% COLA -- the highest in around four decades. Next year, though, the adjustment will be considerably smaller at just 3.2%.
For the average retired worker, that will amount to around $59 more per month after the COLA takes effect. While a smaller COLA may be disappointing for many retirees, it also means that inflation has slowed over the past year -- which is positive news for those who have been struggling with rising prices.
The not-so-good news, however, is that despite these COLAs, Social Security is still fighting to keep up with inflation. In fact, benefits have lost around 40% of their buying power since 2000, a 2022 report from The Senior Citizens League found.
In other words, your benefits may not go as far in the future as they do now -- even though your checks will be increasing in 2024.
2. Workers may keep more of their benefits
If you're continuing to work after claiming Social Security, you may be able to keep more of your benefits starting in 2024.
When you're under your full retirement age (FRA), you can only earn up to a certain limit before your benefits are reduced. There are two different limits: one for if you won't reach your FRA in 2024, and a separate limit if you will reach your FRA next year.
| Reductions | 2024 Earnings Limit | 2023 Earnings Limit | |
|---|---|---|---|
| If you won't reach your FRA in 2024 | Benefits 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 | Benefits will be reduced by $1 for every $3 over the limit | $59,520 per year | $56,520 per year |
Source: Social Security Administration
Higher earnings limits starting in 2024 will mean that you can earn more from your job before facing benefit reductions. While these limits aren't increasing by much, every little bit counts if you're going to be relying on Social Security in retirement.
3. The maximum benefit (and wage cap) will increase
This change will primarily affect those who haven't yet claimed Social Security. In 2023, the maximum you can collect from Social Security is $4,555 per month. Starting in 2024, though, that figure will increase to $4,873 per month.
To reach the maximum payments, there are three requirements you'll need to meet: work for at least 35 years, delay claiming benefits until age 70, and consistently reach the maximum taxable earnings limit, or wage cap.
The wage cap is the highest income subject to Social Security taxes. Starting next year, it will be increasing from $160,200 per year to $168,600 per year. Earning the maximum benefit involves consistently reaching this limit throughout your career, and because it generally increases year after year, it's only getting more difficult to earn the highest possible payments.
Next year will bring some big changes to Social Security, and it's wise to start preparing for them now. When you know what to expect heading into 2024, you can begin planning your budget accordingly.
