For more than eight decades, Social Security has been providing a financial foundation for those who need it most. An estimated 21.7 million people, including close to 15.4 million adults aged 65 and over, are pulled out of poverty by America's top retirement program each year.
What's particularly interesting about Social Security is that it's constantly evolving, with a number of significant changes announced annually. As we usher in the new year, here are seven Social Security changes that take effect today.
Image source: Getty Images.
1. Social Security checks are getting beefier
The flagship change the program's 67 million beneficiaries are most looking forward to is the 2024 cost-of-living adjustment (COLA).
COLA is the mechanism that allows Social Security to account for inflation -- i.e., the rising price for goods and services. If the price for a basket of goods and services regularly purchased by retirees increases, benefits should ideally rise by a commensurate amount to ensure no loss of purchasing power.
In 2024, Social Security benefits will receive a 3.2% cost-of-living adjustment. While this is a far cry from the historic 8.7% COLA that was passed along in 2023, it's still higher than the 2.6% average COLA over the past 20 years. For the typical retired worker, it means an extra $59 per month this year. Meanwhile, workers with disabilities and survivor beneficiaries can expect their monthly Social Security check to increase by $48 and $47, respectively.
But keep in mind that Medicare Part B premiums -- the segment of Medicare responsible for outpatient services -- are set to climb by nearly 6% this year after declining in 2023. Chances are that a sizable increase in Part B premiums will partially or fully offset the 3.2% COLA for some beneficiaries.
2. High earners are potentially facing a larger tax bill
Social Security changes can affect more than just the 67 million people currently receiving a monthly check. For a select group of working Americans, the new year means having to open their wallets a bit wider.
In 2023, all earned income (wages and salary, but not investment income) between $0.01 and $160,200 was subject to the 12.4% payroll tax. This payroll tax accounts for about 90% of the revenue that America's top retirement program brings in.
With few exceptions, the maximum taxable earnings cap (the $160,200 figure in 2023) adjusts higher along with the National Average Wage Index every year. In 2024, all earned income between $0.01 and $168,600 is subject to the payroll tax.
Since approximately 94% of working Americans won't earn above $160,200 this year, increasing the maximum taxable earnings cap won't affect them. But for the remaining 6% of high earners, an $8,400 increase to the maximum taxable earnings cap could mean up to $1,041.60 in added taxation (for the self-employed) in 2024.
3. The maximum monthly payout at full retirement age is climbing
On the other end of the spectrum, a small group of lifetime high earners are on the receiving end of a sizable increase in their monthly benefit.
Last year, the maximum monthly payout a retired worker could receive at their full retirement age -- i.e., the age they're eligible for 100% of their monthly payout -- was $3,627. The Social Security Administration (SSA) notes that about 2% of eligible beneficiaries qualify for this maximum payout. In 2024, the maximum retired worker benefit at full retirement age is climbing by $195 per month to $3,822.
To achieve this maximum payout, a retired worker would need to:
- Wait until their full retirement age to claim benefits.
- Work at least 35 years, since the SSA takes into account a worker's 35 highest-earning, inflation-adjusted years when calculating their benefit at full retirement age.
- Reach or surpass the maximum taxable earnings cap in all 35 years taken into consideration by the SSA.
Image source: Getty Images.
4. Two fewer states are now taxing Social Security benefits
Little-known unpleasant fact about Social Security: Benefits can be taxable at the federal level, depending on your provisional income. Additionally, Social Security benefits can be taxed in certain states.
The good news is that, beginning today, two states are no longer taxing Social Security benefits. As my keen-eyed colleague Dan Caplinger noted three weeks ago, Nebraska and Missouri have shelved their respective Social Security taxation. That leaves 10 states that may still tax Social Security benefits based on preset income thresholds.
One thing that hasn't changed in decades is the provisional income threshold associated with the federal taxation of Social Security benefits. The two tiers of federal benefit taxation, which were respectively introduced in 1983 and 1993, have never been adjusted for inflation. With the 2023 Social Security Board of Trustees Report pegging the program's long-term funding obligation shortfall at a staggering $22.4 trillion, it's highly unlikely reform is on the horizon.
5. Early-filer withholding thresholds jumped once more
The new year also brings big changes for retired workers who chose to take their benefits early (i.e., prior to reaching their full retirement age).
Claiming benefits before reaching full retirement age means accepting a permanently reduced monthly payout. It may also expose early claimants to the retirement earnings test. The retirement earnings test allows the SSA to withhold some or all of an early filer's benefits if they bring home too much income.
For instance, early claimants who didn't reach full retirement age in 2023 saw $1 in benefits withheld for every $2 in earned income above $21,240 ($1,770 per month). This year, withholding won't kick in for early filers who won't reach their full retirement age until $22,320 ($1,860 per month).
There are notable changes for early filers who will reach their full retirement age in 2024, as well. Last year, early claimants could see $1 in benefits withheld for every $3 in earned income above $56,520 ($4,710 per month). The withholding threshold increases to $59,520 ($4,960 per month) for early filers expected to reach full retirement age in 2024.
Note that the retirement earnings test no longer applies once an individual reaches their full retirement age. Previously withheld benefits are returned in the form of a higher monthly benefit.
6. Disability income thresholds have risen
Social Security's disability income thresholds also tend to change most years.
Although Social Security was signed into law in 1935 to offer a financial foundation for older workers who could no longer provide for themselves, monthly disability insurance benefits were added roughly two decades later. For the past 67 years, the program has helped provide some degree of financial safety to workers with qualifying long-term disabilities.
In 2023, non-blind workers with disabilities were allowed to earn up to $1,470 per month without having their benefits halted. This year, non-blind workers with disabilities can earn up to $1,550 per month ($960 extra per year) without a stoppage to their monthly payout.
For workers with disabilities who are blind, the nominal-dollar increase is even more substantial. Whereas disability insurance benefits would have ceased above $2,460 per month in 2023, this threshold now rises to $2,590 per month in 2024.
7. Qualifying for a Social Security benefit has become incrementally tougher
The seventh and final Social Security change that takes effect today will impact future generations of beneficiaries.
Being an American citizen doesn't automatically qualify a person to receive Social Security retirement benefits. The vast majority of Americans earn their right to a benefit by working. A total of 40 lifetime work credits is needed to qualify for a benefit.
Though no more than four work credits can be earned each year, the bar is set relatively low to earn these credits. Last year, it took $1,640 in earned income to receive one lifetime work credit. Thus, $6,560 in earned income ($1,640 times 4) maxed out a worker's allotted credits for the year.
In 2024, it'll take $1,730 in earned income to qualify for a quarter of coverage. Put another way, you'll need $6,920 in wages and salary to amass the full four credits in the new year.
