Social Security Changes to Expect in 2024: Understand Them to Plan Better
Social Security is a lifeline for millions of retirees, but America’s top retirement program isn’t easy to understand. The program is plagued by many complicated rules, and the constant changes made to those rules every year make it even harder to understand. Usually Social Security undergoes several changes annually.
Anticipating and understanding those changes beforehand can help beneficiaries better plan their budget. Thus, in this article, we will discuss what Social Security changes to expect in 2024.
Social Security Changes To Expect In 2024
The Social Security Administration (SSA) usually announces annual changes, if any, to the Social Security program by mid-October. Such timing leaves you with little time to make adjustments to your financial plan. Thus, it is better to anticipate those changes beforehand and try to understand their impacts.
Here are the Social Security changes to expect in 2024:
Modest Rise In COLA
The cost-of-living adjustment (COLA) is the adjustment made to Social Security benefits to account for the increase in the prices of goods and services due to inflation. Such an adjustment helps ensure that Social Security beneficiaries don’t see their purchasing power decline over time.
In 2023, Social Security witnessed the highest COLA in 41 years at 8.7%, providing another $146 per month to retirees, on average. However, next year, the COLA is expected to moderate as inflation has cooled off this year compared to last year.
The Senior Citizens League (TSCL) estimates a COLA of 3% in 2024, translating into an extra $55 per month for retirees.
Rise In Early-Filer Withholding Thresholds
The SSA uses two ways to penalize retirees who claim their benefits early. The first is by permanently reducing their monthly payout, and the second is through the retirement earnings test. The second option allows the SSA to withhold part or all of the benefits, depending on the beneficiaries’ income.
The SSA was allowed to withhold $1 in benefits for every $2 in earned income over $21,240 ($1,770 a month) from beneficiaries who didn’t reach full retirement age (FRA) in 2023 and are still working. On the other hand, if a beneficiary reaches their full retirement age sometime in 2023, the SSA can withhold $1 in benefits for every $3 in earned income over $56,520 ($4,710 a month).
The SSA’s withholding thresholds are expected to rise modestly next year. This means early filers will be able to get some extra benefit without going through the retirement earnings test. In 2021, about 65% of retired workers claimed their benefit before reaching full retirement age.
Increase In Threshold Income For People With Disabilities
In addition to early filers, those with long-term disabilities could also see an increase in their benefits next year. A person with benefits needs to meet the income threshold to qualify for continued disability benefits.
In 2023, for instance, people with disabilities (except for blindness) can continue to receive benefits if their income doesn’t exceed $1,470 a month. The threshold income for blind Americans is up to $2,460 per month.
Qualifying For Social Security Benefits May Get Relatively Harder
Earning the required lifetime work credits is the biggest requirement to qualify for Social Security benefits. A person needs to earn 40 lifetime work credits to qualify for the benefit (up to four credits can be earned in a year).
In 2023, one credit amounted to $1,640 in earned income. Thus, a person needs to earn about $6,560 to get the maximum number of credits in a year. Like with many other things, this earned-income threshold is also linked to inflation.
Thus, this threshold is likely to rise next year as well. This would mean a person will have to make more income to qualify for the credit.
Rich Americans May End Up Paying More
The Social Security program has three funding sources:
- 12.4% payroll tax on wages and salaries.
- Interest income earned from investing the program’s more than $2.8 trillion in asset reserves.
- Revenue earned from taxing Social Security benefits for individuals and couples whose income exceeds the preset thresholds.
In 2023, payroll taxes applied to all income up to $160,200. It means that $160,200 represents the maximum taxable earnings cap for Social Security. This number rises in most years in accordance with the National Average Wage Index (NAWI).
The NAWI is expected to rise again this year, which means the maximum taxable earnings cap will also go up. However, only 6% of the taxpayers hit the maximum taxable earnings cap in a given year, which means 94% of taxpayers won’t be affected.
Maximum Monthly Benefit May Rise As Well
Similar to how the SSA caps how much of a taxpayer’s earnings is subject to the payroll tax, the program also limits the amount that a beneficiary receives each month at FRA (full retirement age).
In 2023, the maximum monthly payout at FRA increased by $283 per month to $3,627. Considering that the inflation rate is still on the rise, although moderately, a hike in the maximum monthly payout next year is expected. However, similar to the maximum taxable earnings cap, very few beneficiaries (just about 2%) qualify for the maximum monthly benefit.
Beneficiaries need to meet a few requirements to receive the maximum monthly payout, including waiting until FRA to start collecting the benefits; working for at least 35 years; and reaching or surpassing the maximum taxable earnings cap for all those 35 years.
This article originally appeared on ValueWalk
Sponsored: Tips for Investing
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.Source: Read Full Article