Social Security beneficiaries should be aware of three significant changes that will affect their benefits starting in 2024. These changes are essential for retired workers to understand as Social Security benefits become increasingly crucial in retirement.
Firstly, there will be a modest cost-of-living increase (COLA) of 3.2% in 2024. This adjustment aims to account for rising prices across the economy. However, it may disappoint retired workers who have received higher COLAs in previous years, such as 8.7% in 2023 and 5.9% in 2022. Despite the smaller increase, this indicates that inflation is slowing down, which has a silver lining. If the COLA had been higher, it could have accelerated the depletion of the trust fund and brought possible benefit cuts closer. On average, retirees can expect an additional $59 per month after the 3.2% COLA, and individualized COLA notices will be mailed out in December. Retirees can also check their updated benefit amount through their My Social Security account starting in early December. However, one downside of the cost-of-living increase is that more retired workers may owe taxes on their Social Security benefits.
Secondly, the maximum retired worker benefit for new beneficiaries will increase. The Social Security Administration adjusts benefit payments based on the national average wage index to account for living standard increases over time. Consequently, the maximum Social Security payout for newly awarded beneficiaries tends to rise each year. In 2024, the maximum payout at full retirement age (FRA) will be $3,822 per month, compared to $3,627 per month in 2023. This increase highlights the importance of delaying Social Security, as the maximum retired worker benefit at age 70 is about 27% larger than the maximum benefit at FRA and 80% greater than the maximum benefit at age 62.
Lastly, the income limits for workers receiving Social Security retirement benefits will increase. Workers who claim benefits before FRA and continue working may have a portion of their Social Security check temporarily withheld if their income exceeds specific limits. These limits, known as retirement earnings test exempt amounts, are adjusted annually based on changes in general wage levels. In 2024, the lower limit will be $22,320 per year (or $1,860 per month), up from $21,240 per year (or $1,770 per month) in 2023. The upper limit will be $59,520 per year (or $4,960 per month), up from $56,520 per year (or $4,710 per month) in 2023. It’s crucial for retirees to understand that these limits no longer apply once they reach FRA, and their benefits will be paid in full without considering other income. Additionally, workers who have benefits withheld will receive a larger Social Security check once they reach FRA, compensating for the “lost” income over their lifetime.
In summary, these three changes to Social Security in 2024 include a modest cost-of-living increase, an increase in the maximum retired worker benefit for new beneficiaries, and an increase in the income limits for workers receiving Social Security retirement benefits. Retired workers should stay informed about these changes to ensure they understand the impact on their benefits and can plan accordingly.
