This past week, on Oct. 12, 2023, the Social Security Administration (SSA) released the program's "Fact Sheet" for 2024, which outlines a host of changes that impact everything from the checks beneficiaries receive to the payroll taxes working Americans will owe. Here are the top 3 changes.
COLA
Anyone collecting social security has been waiting to hear how the cost-of-living adjustment (COLA) increases will increase their social security checks.
Drum roll please: 2024 will usher in an above-average cost of living adjustment. The Social Security Administration has announced a 3.2% COLA for 2024, which surpasses the average historical COLA increase of 2.6% but doesn’t come close to the larger increase for 2023. This adjustment means the average Social Security retiree beneficiary will see their monthly check increase more than $50, bringing the average monthly benefit to $1,907.
Individual benefits may vary. Social Security will send you a statement providing you your exact increase sometime in December.
Higher Earners to Pay More and the Maximum Benefits Increase Too
In 2023, earned income (not investment income) up to $160,200 is subject to the 15.3% payroll tax to cover Social Security and Medicare. Half paid by the employee and half paid by the employer. The 2024 adjustments also impact the cap. Starting in 2024 income cap increases to $168,600.
The tradeoff for paying more in is potentially collecting a larger benefit. In 2023 the most a beneficiary could expect to receive each month at full retirement age is $3,627. That amount increases to $3,822 per month, a hefty bump, but reaching the maximum is tough. Larger payments come from not only working at least 35 years, but also hitting the taxable earnings cap each year and waiting until full retirement age to claim benefits.
Retire Early and You Can Earn A Little More Without Penalty
Based on figures from the Social Security 65% of retired workers had claimed their payout prior to reaching full retirement age. Not only do early filers receive a permanently reduced monthly benefit but are also subject to the retirement earnings test and may be subject to penalties if earned income is too high.
The Social Security Administration has a $1 withholding for every $2 in earned income above the threshold if you are claiming social security benefits before your full retirement age (FRA). In 2024, the earning threshold increases to $22,320, or $1,860 per month.
Special consideration is offered the year you reach FRA. The Social Security Administration will withhold $1 in benefits for every $3 in earned income beyond $59,520 or $4,960 monthly during 2024.
Keep in mind the retirement earnings test only applies before full retirement age. Once you reach FRA, regardless of when you claimed your benefit, the earnings test is no longer applicable.
Bottom Line
The annual Social Security COLA announcement is always a good time to revisit your income and expenses to see if anything has changed that warrant a change in your investment strategy.
If we can help with that conversation, we hope you’ll contact us today.
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