3 Social Security Changes Retirees Need to Know About in 2024 - Latest Global News

3 Social Security Changes Retirees Need to Know About in 2024

The need for social security reform is well documented. The trustees’ latest report suggests that the Social Security pension fund will run out of money by 2033 if Congress does nothing. This could lead to big changes in the near future.

But Social Security rules change a little almost every year. And even a small change can have a significant impact on the well-being of millions of seniors who rely on their monthly benefits to make ends meet. 2024 is no different.

Here are three Social Security changes retirees need to know about in 2024.

A social security card between $100 bills.

Image source: Getty Images.

1. The maximum social security benefit has been increased

A select group of Social Security recipients will receive a monthly check of $4,873 this year. That’s an increase from the maximum benefit of $4,555 per month in 2023.

To receive this maximum benefit, you must be 70 years old and have earned income above the maximum taxable income for at least 35 years of your professional career. This is something only a small proportion of people will do.

To achieve maximum benefit, two things are required.

The first is the annual cost of living adjustment. Each year, the Social Security Administration adjusts the amount of pension benefits based on the average increase in inflation in the third quarter of the previous year. The COLA in 2024 was 3.2%.

The second factor has to do with the way the SSA calculates your average wage to determine monthly benefits. The 35 years with the highest income are used and adjusted for inflation. The average wage index is used, which indicates how much employees are paid on average each year. However, these inflation adjustments are tied to the index in the year you turn 60. Any wages you earn in your 60s or later are not adjusted for inflation.

Younger retirees who consistently earned above the maximum taxable income have higher average monthly earnings because more of their wages are adjusted based on more recent wage data. This directly affects how high your maximum benefit is. So this year’s group of 70-year-olds has a higher average wage than last year’s group of 70-year-olds (who are now 71) and therefore a higher peak output.

2. Pensioners who have applied early can earn more without this affecting their monthly pension

If you continue to work while collecting Social Security early retirement benefits, you can earn more this year before the government withholds some of your benefits.

Beneficiaries who have not yet reached full retirement age are subject to the pension earnings test. As part of the earnings test, the Social Security Administration withholds $1 for every $2 you earn over the earnings limit. The year in which you reach full retirement age has a higher threshold, and the SSA only withholds $1 for every $3 above the threshold. Any wages and remuneration from work or self-employment are considered earnings.

For 2024, the earnings test thresholds are $22,320 and $59,520. These have increased from $21,240 to $56,520 in 2023.

Although the state will withhold some of your benefits if you earn above the threshold, it does not keep them for itself. Instead, the amount withheld is used to adjust your monthly benefit when you reach full retirement age. For each month withheld through the retirement earnings test, your benefit will be adjusted as if you had delayed claiming Social Security by one month.

Once you reach full retirement age, you are no longer subject to the earnings test and your monthly benefit may return to normal levels.

3. Social Security payroll taxes cover more income

In 2024, workers will pay Social Security tax on their first wages of $168,600. That’s 5.3% more than $160,200 in 2023. That’s significantly more than this year’s COLA of 3.2%.

While this doesn’t have a direct impact on most retirees, the indirect impacts are important. Social Security retirement benefits are increasingly funded by taxes paid into the program as the SSA begins to deplete the trust fund. As the taxable wage cap increases, the program should generate more tax revenue.

Importantly, only a small percentage of workers will earn above the wage cap. The SSA estimates just 6%. However, the maximum taxable income figure is tied to the average wage index, which reflects average wage growth. So as long as average wage growth continues to exceed inflation, this should generate more tax revenue for the program and help maintain current pension benefits.

Comprehensive reform is still needed for Social Security to survive in the long term, but real wage growth is helping in the meantime.

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“3 Social Security Changes Retirees Need to Know About in 2024” was originally published by The Motley Fool

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