For more than eight decades, Social Security has been providing a financial foundation for those who need it most. An estimated 21.7 million people, including nearly 15.4 million adults age 65 or older, are lifted out of poverty through America's top retirement program each year.
What's particularly interesting about Social Security is that it is constantly evolving, with a number of important changes announced annually. As we ring in the new year, here are seven Social Security changes that take effect today.
Image source: Getty Images.
1. Social Security checks have become more robust
The main change the program's 67 million beneficiaries are looking forward to is the 2024 cost of living adjustment (COLA).
COLA is the mechanism that allows Social Security to account for inflation—that is, rising prices for goods and services. If the price of the basket of goods and services that retirees purchase regularly increases, it is better for benefits to rise by a proportionate amount to ensure that purchasing power is not lost.
In 2024, Social Security benefits will receive a 3.2% cost-of-living adjustment. While this is a far cry from the historic 8.7% COLA rate passed in 2023, it is still higher than the average 2.6% COLA rate over the past 20 years. For the typical retired worker, that means an extra $59 per month this year. Meanwhile, disabled workers and survivor beneficiaries can expect their monthly Social Security check to increase by $48 and $47, respectively.
But keep in mind that Medicare Part B premiums — the part of Medicare responsible for outpatient services — are set to rise about 6% this year after falling in 2023. Part B premiums will likely rise partially or completely . 3.2% COLA compensation for some beneficiaries.
2. Higher income earners will likely face a larger tax bill
The Social Security changes could affect more than 67 million people who currently receive a monthly check. For a select group of working Americans, the new year means having to open their wallets a little wider.
In 2023, all earned income (wages and salaries, but not investment income) between $0.01 and $160,200 was subject to a 12.4% payroll tax. This payroll tax represents about 90% of the revenue brought in by America's top retirement program.
With few exceptions, the maximum taxable earnings ($160,200 in 2023) are adjusted upward along with the national average wage index each year. In 2024, all earned income between $0.01 and $168,600 is subject to payroll tax.
Since nearly 94% of working Americans won't earn more than $160,200 this year, increasing the maximum taxable earnings cap won't affect them. But for the remaining 6% of high earners, the $8,400 increase to the maximum taxable earnings could mean up to $1,041.60 in added taxes (for the self-employed) in 2024.
3. The maximum monthly return at full retirement age is rising
At the other end of the spectrum, a small group of high-income earners over the course of a lifetime receive a significant increase in their monthly benefits.
Last year, the maximum monthly return a retired worker could receive at full retirement age — the age at which he or she is eligible to receive 100% of his or her monthly return — was $3,627. The Social Security Administration (SSA) indicates that about 2% of eligible beneficiaries are eligible for this maximum payment. In 2024, the maximum benefit for a worker retiring at full retirement age will increase by $195 per month to $3,822.
To achieve this maximum return, the retired worker will need to:
- Wait until full retirement age to claim benefits.
- Working for at least 35 years, the Social Security Administration takes into account the top 35 of inflation-adjusted earners when calculating their benefits at full retirement age.
- Reaching or exceeding the maximum taxable earnings in all 35 years that the Social Security Administration takes into account.
Image source: Getty Images.
4. Two fewer states now tax Social Security benefits
An unpleasant little-known fact about Social Security: Benefits can be taxed at the federal level, depending on your interim income. Additionally, Social Security benefits may be taxed in some states.
The good news is that starting today, two states no longer tax Social Security benefits. As my insightful colleague Dan Caplinger pointed out three weeks ago, Nebraska and Missouri have decided to defer their Social Security taxes. That leaves 10 states that may continue to tax Social Security benefits based on previously established income thresholds.
One thing that hasn't changed in decades is the temporary income threshold tied to federal taxes on Social Security benefits. The two federal interest tax levels, introduced respectively in 1983 and 1993, were not adjusted for inflation. And with the Social Security Board of Trustees' 2023 report pegging the shortfall in the program's long-term financing commitments at a staggering $22.4 trillion, reform is unlikely to be on the horizon.
5. Early filing thresholds jumped again
The new year also brings big changes for retired workers who chose to take their benefits early (that is, before they reach full retirement age).
Claiming benefits before reaching full retirement age means accepting a permanently reduced monthly payment. It may also expose early claimants to a retirement earnings test. The retirement earnings test allows the Social Security Administration (SSA) to withhold some or all of an early filer's benefits if they bring home too much income.
For example, early claimants who did not reach full retirement age in 2023 saw $1 of benefits withheld for every $2 of income earned above $21,240 ($1,770 per month). This year, the withholding will not apply to early filers who will not reach full retirement age until $22,320 ($1,860 per month).
There are notable changes for early adopters who will Reaching full retirement age in 2024 as well. Last year, early claimants could receive $1 in benefits withheld for every $3 of income earned above $56,520 ($4,710 per month). The deduction limit increases to $59,520 ($4,960 per month) for first filers expected to reach full retirement age in 2024.
Note that the retirement earnings test no longer applies once an individual reaches full retirement age. Previously withheld benefits are returned in the form of a higher monthly benefit.
6. Disability income thresholds have risen
Social Security disability income thresholds also tend to change in most years.
Although Social Security was signed into law in 1935 to provide a financial foundation for older workers who could no longer support themselves, monthly disability insurance benefits were added nearly two decades later. Over the past 67 years, the program has helped provide some degree of financial security to workers with qualifying long-term disabilities.
In 2023, workers with disabilities who are not blind are allowed to earn up to $1,470 per month without having their benefits stopped. This year, non-blind workers with disabilities can earn up to $1,550 per month ($960 more per year) without their monthly payments stopping.
For workers with disabilities who are blind, the nominal dollar increase is even more significant. While disability insurance benefits would have stopped at $2,460 per month in 2023, that limit now rises to $2,590 per month in 2024.
7. Qualifying for Social Security benefits is becoming increasingly more difficult
The seventh and final change to Social Security that takes effect today will affect future generations of beneficiaries.
Being a US citizen does not automatically qualify a person for Social Security retirement benefits. The vast majority of Americans earn their right to a benefit through work. A total of 40 credit hours of lifetime work are needed to qualify for a benefit.
Although no more than four business credits can be earned each year, this is a relatively low minimum for earning these credits. Last year, it took $1,640 in earned income to get one lifetime work credit. Thus, earned income of $6,560 ($1,640 x 4) reached the worker's maximum credits for the year.
In 2024, it would take $1,730 of earned income to qualify for a quarter of coverage. In other words, you'll need $6,920 in wages and salaries to accumulate the full four credits in the new year.
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