Recent data from the Census Bureau shows that Social Security kept about 29 million Americans out of poverty in 2022. That means it had a greater impact than every other anti-poverty program combined. But Social Security also plays an important role in helping Americans finance their retirement. In fact, the vast majority of retired workers depend on benefits to some degree, according to Gallup.
Suffice to say Social Security matters a great deal to many people, especially seniors, yet people consistently score poorly when tested on their knowledge of the program. That is concerning because even small knowledge gaps can lead to costly mistakes when planning for retirement.
Here are three Social Security changes that took effect in 2024 that may surprise many Americans.
Image source: Getty Images.
The Social Security payroll tax covers more income in 2024
Nationwide Retirement Institute reports that 74% of surveyed adults incorrectly marked the following statement as true: "Workers pay Social Security taxes on all of their income."
That statement is false. Only some income is subject to Social Security payroll tax. The amount is limited based on the National Average Wage Index, an annual measure of U.S. wage trends calculated by the Social Security Administration. The average wage level generally rises each year, which means the maximum taxable earnings limit tends to increase each year, too.
For instance, the maximum taxable earnings limit is $168,600 in 2024. That is up from $160,200 in 2023. That means workers with wages exceeding $168,600 will not pay Social Security taxes on all of their income this year. Some politicians see that as an opportunity to shore up the program.
Social Security benefits got a cost-of-living adjustment in 2024
Nationwide Retirement Institute says that 70% of surveyed adults incorrectly marked the following statement as true: "Social Security is not protected against inflation."
That statement is false. The purchasing power of Social Security is protected from inflation by annual cost-of-living adjustments (COLAs). Currently, those COLAs are determined based on how the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) changes in the third quarter of each year, though some politicians believe other methods would produce more accurate COLAs.
In any case, the CPI-W rose 3.2% in the third quarter of 2023, so Social Security benefits got a 3.2% COLA in 2024. Those regularly scheduled benefit increases are designed to help retired workers and other beneficiaries keep up with rising prices.
The maximum Social Security benefit increased in 2024
Nationwide Retirement Institute reports that 44% of surveyed adults incorrectly marked the following statement as false: "There is a cap to how much Social Security benefits you can get."
That statement is true. Social Security benefits are primarily funded through payroll taxes, and because the amount of income subject to Social Security payroll tax is limited, benefits payable by program are also limited. Likewise, just as the maximum taxable earnings level increases in lockstep with wages from one year to the next, so does the maximum Social Security benefit. For instance, the largest monthly benefit at full retirement age (FRA) is $3,822 in 2024. That is up from $3,627 in 2023.
However, claiming age in an important variable in determining benefits. Retired workers that start Social Security after FRA earn delayed retirement credits that increase their benefit by two-thirds of 1% per month until age 70. As a result, the maximum Social Security benefit varies based on claiming age, but only retired workers that claim at age 70 can get the largest possible payout.
The table below shows the maximum monthly Social Security benefit at different claiming ages in 2024.
|
Claiming Age in 2024 |
Maximum Social Security Benefit |
|---|---|
|
62 |
$2,710 |
|
65 |
$3,426 |
|
66 |
$3,652 |
|
FRA |
$3,822 |
|
67 |
$3,911 |
|
70 |
$4,873 |
Data source: Social Security Administration. Some workers born in late 1957 will reach FRA this year at 66 years and 6 months, and some workers born in early 1958 will reach FRA this year at 66 years and 8 months.
Social Security will undergo similar changes next year
To review, I've discussed three changes to Social Security that took effect in 2024. Income up to $168,600 is now subject to Social Security payroll tax, up from $160,200 in 2023. Social Security benefits received a 3.2% COLA to help retired workers and other beneficiaries keep up with rising prices. And the maximum Social Security benefit increased to account for rising wages, such that retired workers at FRA could receive up to $3,822 per month in 2024, up from $3,627 per month in 2023.
The same aspects of the Social Security program will change again in 2025. The official figures will not be published until October 2024, but the Congressional Budget Office estimates that the maximum taxable earnings limit will increase to $176,100, and that Social Security benefits will get a 2.5% COLA next year.
