It seems like the rules about Social Security and retirement are changing just about every year.
From increases in full retirement ages to cost-of-living adjustments, there's a bevy of information for retirees and near-retirees to pay attention to at the end of every year. And 2024 is no different. Seniors will see their fair share of rule changes, and some could even come as a surprise.
But a pair of Social Security rules won't change at all next year. And the lack of rule changes could end up being the biggest surprise of them all.
Here's what retirees and near-retirees need to know.
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1. Social Security federal income tax
Social Security uses a metric called combined income to determine what portion, if any, of your benefits count as taxable income on your federal income taxes. Combined income is equal to your adjusted gross income plus any nontaxable interest income plus one-half of your Social Security income.
If your combined income exceeds certain thresholds, you'll owe taxes on a portion of your Social Security. The thresholds seen in the table below have been set in stone for 30 years.
| Taxable Percentage of Social Security Benefits | Filing Single | Filing Jointly |
|---|---|---|
| Up to 50% | $25,000 to $34,000 | $32,000 to $44,000 |
| Up to 85% | Over $34,000 | Over $44,000 |
Data source: Social Security Administration.
Those thresholds stay the same even though Social Security benefits receive a cost-of-living adjustment every year.
And while regular income tax brackets are typically adjusted for inflation, the Social Security taxation rules don't factor in any adjustment. The result: More and more of your Social Security income becomes taxable each year, all else being equal.
While you might be able to do some careful planning to avoid paying too much in taxes on your Social Security, it's becoming harder and harder to stay below those thresholds and avoid missteps.
2. Delayed retirement credits
Most people know they can receive a higher Social Security check if they delay their benefits beyond their full retirement age. Indeed, you'll receive a two-thirds of 1% boost to your monthly check for each month you delay.
However, you won't receive any additional retirement credits beyond age 70, and that's not changing.
What makes that lack of a rule change extra painful is that the full retirement age is increasing. In 2024, people born in 1957 and 1958 will reach their full retirement age at 66 years and 6 months (for those born in 1957) or 66 years and 8 months (for those born in 1958). Full retirement age will continue to climb until 2027, when those born in 1960 will receive their full benefits at age 67.
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The lack of a rule change for delayed retirement credits means the maximum additional benefit you can get for delaying is decreasing. While those born from 1943 to 1954 could receive up to 132% of their primary insurance amount by delaying until age 70, those born in 1960 or later will only be able to receive a maximum of 124% of their primary insurance amount.
That doesn't mean delaying until age 70 becomes less optimal as a strategy for claiming Social Security. Most retirees will maximize their savings by delaying benefits as long as possible. Unless you have reason to believe your life expectancy will be shorter than average, you should delay until you maximize your monthly benefit as long as you're financially capable.
Know the rules
Social Security is a cornerstone for most Americans' retirement plans. While you need to pay attention to all the annual changes, you also need to be aware of how the above two rules are impacted by those changes. For many, the above two rules could create a surprise when it comes time to claim benefits and pay taxes. But if you know the rules, you'll be able to plan and prepare your finances.
