As inflation persists, the Social Security Administration (SSA) is increasing the cost of living adjustment (COLA) for benefit payments in 2024. This represents just one of several recent updates from the Social Security program. With over 71 million individuals relying on Social Security’s various benefit programs, annual alterations to the program and its disbursements are highly anticipated.
Although this year’s cost-of-living adjustment marks a significant decrease from the record-breaking 8.7% increase seen last year, which was the largest in over four decades, any additional income is welcomed by those living on fixed incomes. Let’s explore the key modifications coming to Social Security in the upcoming year and what you should be aware of.
Cost of Social Security Living Adjustment (COLA) Increase
The Social Security Administration (SSA) has officially revealed a 3.2% rise in benefit payments for 2024. This substantial 3.2% adjustment translates into a $59 monthly boost in benefits for the average retired Social Security recipient, commencing in January. More precisely, the typical benefit for retired individuals will climb from $1,848 to $1,907. In the case of a couple where both partners receive benefits, the combined monthly payment will see an increase from $2,939 to $3,033, marking a $94 uptick.
Since 1975, the SSA has linked cost of living adjustments to the Consumer Price Index for urban wage earners and clerical workers (CPI-W). To determine the COLA, the SSA compares the third-quarter CPI-W for the previous year with the third-quarter CPI-W of the current year and then modifies the COLA based on the differences in CPI-W from one year to the next.
Increased Maximum Taxable Earnings
In 2023, the highest earnings that were subject to Social Security taxes amounted to $160,200. In other words, employees contributing to the system were taxed on their wages up to this threshold, typically at a 6.2% rate. However, for 2024, the maximum taxable earnings will see an uptick to $168,600. This signifies that a larger portion of an individual’s income will now be subject to Social Security tax. This adjustment stems from the overall rise in average wages across the United States.
As anticipated, the maximum Social Security benefit available to a worker who retires at their full retirement age is slated to rise in 2024. This increase will push the maximum benefit from $3,627 to $3,822. It’s essential to emphasize that this highest potential benefit pertains to individuals retiring at the full retirement age, which is 67 for individuals born after 1960.
It’s worth noting that the maximum benefit differs for those who choose to retire before reaching the full retirement age, as benefits are reduced in such instances. Likewise, for those opting to retire after the full retirement age, this strategy can lead to maximizing their benefit payments.
Increased Average Benefits for Spouses and Disabled Workers
In 2024, average benefits will experience a broad-based increase, encompassing benefits for individuals such as widows, widowers, and those with disabilities. Here’s the breakdown of these figures:
- The Social Security Administration (SSA) reports that the average benefit for a widowed mother with two children will rise from $3,540 to $3,653.
- Aged widows and widowers who are living independently will witness their benefits increase from $1,718 to $1,773.
- The benefit for a disabled worker with a spouse and one or more children will see an increase from $2,636 to $2,720.
It’s important to remember that these figures represent averages, and individual circumstances may lead to variations.
Social Security Adjusts Earnings Test Exempt Amounts
When you decide to claim your retirement benefits before reaching your full retirement age, Social Security may withhold a portion of your benefits if your income exceeds specific levels. This is referred to as the retirement earnings test exempt amounts, and it can significantly affect your benefits if you’re still actively employed. Here’s how it will function in 2024.
If you commence collecting Social Security before reaching full retirement age, you can earn up to $1,860 per month (equivalent to $22,320 per year) in 2024 without triggering benefit withholdings. Beyond this limit, the Social Security Administration (SSA) will start withholding $1 in benefits for every $2 earned above the threshold. In 2023, the maximum exempt earnings were set at $1,770 per month (or $21,240 per year).
In the year you achieve full retirement age, this rule still applies, but only until the month you attain full retirement age, and it comes with more lenient terms. In 2024, you can earn up to $4,960 per month (equal to $59,520 per year) before facing benefit withholdings. However, the withholding rate changes to $1 in benefits for every $3 earned above the limit, compared to the $2 rate in 2023. Last year, the threshold was $4,710 per month (or $56,520 per year).
Medicare Part B Premiums on the Rise
Although Social Security and Medicare are distinct programs, a significant portion of retirees are enrolled in both, with their Medicare Part B premiums often being deducted automatically from their Social Security payments.
In 2024, the monthly Medicare Part B premiums are set to increase, climbing from $164.90 in 2023 to $174.70. Additionally, the annual Part B deductible is also slated to go up, rising from $226 in 2023 to $240 in 2024, marking a $14 increment.
The bottom line for 2024 is that the Social Security COLA provides retirees and beneficiaries with an above-average increase in their benefits, addressing the persistent issue of inflation. However, this adjustment is just one among several changes made to the program, reflecting ongoing inflation and prompting revisions in various levels and thresholds.