Upcoming Social Security Changes You Should Know About
The Social Security Administration recently announced changes that will take effect in 2024, impacting over 71 million Americans who receive a Social Security check and those who pay into the system. This post outlines key changes so you’re privy to the following updates…
The value of work credits will rise
While most Americans qualify for Social Security benefits, others don’t. Why is that, exactly? You’ll need to earn a minimum of 40 credits throughout your working life to meet related requirements.
According to 2023 laws, an individual receives one credit for every $1,640 earned in income—with a maximum of four credits per year ($6,560). Forty credits are therefore roughly equivalent to 10 years of work.
What’s changing in 2024:
The newest updates mean you’ll receive one work credit for every $1,730 earned in income beginning in 2024. Therefore, if you earn $20 per hour (for example), you’ll need to work just over 86.5 hours to receive one credit. Your average earnings throughout your working years—rather than the number of credits earned—impacts your monthly benefit amount.
The cost-of-living adjustment (COLA) will increase
The Social Security Administration (SSA) is required by law to prevent inflation from eroding the purchasing power of benefits paid to recipients and accomplishes this via a cost-of-living adjustment (COLA) based on the Consumer Price Index (CPI-W): which tracks retail prices as they obviously impact urban hourly wage earners and clerical workers. The SSA announces this cost-of-living adjustment every October.
Consider COLA a raise in your annual paycheck. Although this “raise” only covers the cost of inflation, you’ll often see a corresponding yearly increase in your benefits.
What’s changing in 2024:
The Social Security Administration announced that benefit checks will rise 3.2% (from $1,848 to $1,907) beginning in January, representing an average monthly increase of $59.
More income will be taxed
The federal government charges a payroll tax—FICA (Federal Insurance Contributions Act)—to fund Social Security. This tax is levied on employees and employers, who each contribute 7.65% and 6.2% (currently) toward Social Security. Self-employed workers pay the full 15.3%, 12.4% of which is allocated towards Social Security; but they can generally deduct half this rate (7.65%) when filing their tax returns.
An income cap for the Social Security portion of FICA ($160,200 in 2023) means any earnings beyond this threshold are not subject to Social Security tax.
What’s changing in 2024:
Attributed to a boost in average U.S. wages, the FICA income cap will increase from $160,200 to $168,600 in 2024: making a higher proportion of income subject to tax.
The maximum Social Security benefit will increase
While you can begin receiving benefits at age 62, you aren’t entitled to 100% of your Social Security benefits until reaching “full retirement age” (FRA) based on your birth year. For example, if you were born after 1960, your full retirement age is 67. This metric is subject to change and may in fact gradually rise to accumulate additional Social Security reserves as the program is currently underfunded.
What’s changing in 2024:
The maximum benefit for a worker retiring at full retirement age (FRA) is increasing from $3,627 to $3,822.
Spousal and disabled benefits are getting a boost
If you’re a widow, widower, or disabled, you’ll also see an increase in your average benefits.
What’s changing in 2024:
For widows and widowers living alone, average Social Security benefits will rise from $1,718 to $1,773 on a monthly basis. Widowed mothers with two children will see average benefits increase from $3,540 to $3,653, while disabled workers with a spouse and one or more children will see their average monthly benefit rise from $2,636 to $2,720.
Earnings exempt amounts under the Earning Test will be adjusted
If you work prior to your FRA, the dollar amount of your monthly Social Security check is sometimes temporarily reduced if you earn more than the yearly earnings limit set by the Social Security Administration (SSA).
Based on 2023 limits, the SSA deducts $1 from Social Security benefit payments for every $2 earned above the annual earnings limit for those remaining under full retirement age for the entire calendar year. The 2023 limit for this scenario is $21,240, meaning if you earned $25,000 in 2023, Social Security would withhold $1,880 of your benefits—as you’re $3,760 above the earnings limit.
If you worked during and reached full retirement age in 2023, Social Security would deduct $1 for every $3 you earned above the limit. The 2023 limit was $56,520 in this scenario, with earnings only counted prior to the month you reached your FRA. Therefore, if you earned $60,000 from January through October and didn’t reach full retirement age until November, $1,160 would be withheld.
Keep in mind that if you’re still working when you reach your FRA, your earnings no longer reduce your benefits no matter how much you earn. Also remember that withholding means the Social Security Administration will stop sending you a check until they recoup the amount owed. For example, if you owe $3,500 and your monthly Social Security check is $1,000, you won’t receive a check for four months—with the balance owed ($500) refunded later.
It’s important to note that in each of the scenarios outlined above, you wouldn’t lose your benefits as they are technically just deferred and credited when you reach your FRA.
What’s changing in 2024:
If you begin collecting Social Security benefits prior to reaching your FRA, you can now earn up to $22,320 a year (or $1,860 per month) before the Social Security Administration will start withholding benefits at the rate of $1 for every $2 earned.
In the year you reach your FRA, meanwhile, you can now earn up to $59,520 (or $4,960 per month) before the Social Security Administration will start withholding benefits at the rate of $1 for every $3 earned.
Medicare Part B premiums will increase
While Social Security and Medicare are two separate programs, many retirees who participate in both have their Medicare Part B premium automatically deducted from their Social Security paycheck.
What’s changing in 2024:
Medicare Part B premiums are increasing from $164.90 to $174.70 in 2024 alongside the annual deductible (from $226 to $240).
In sum: Social Security changes in 2024
Annual changes to our country’s Social Security program are always anticipated. While 2024 increases aren’t as high as last year’s, fresh adjustments give a significant boost to those claiming benefits.
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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.
Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.
