Social Security benefits in 2024: 5 big changes retirees should plan for

As long as inflation persists, the Social Security Administration (SSA) is raising the cost of living adjustment (COLA) for benefit checks beginning in 2024. It’s just one of several changes announced recently by Social Security.

Because more than 71 million people rely on one of Social Security’s benefit programs, annual changes to the program and its payouts are always closely watched. While this year’s cost-of-living adjustment is significantly lower than last year’s 8.7% increase — the largest increase in more than 40 years — any additional income is welcome news for beneficiaries on fixed incomes.

Here are some major changes to Social Security that will take effect next year, as well as what you need to know.

1. Cost of living adjustment (COLA) rises

The Social Security Administration has announced that benefit payments will increase by 3.2% in 2024. Beginning in January, the 3.2% adjustment will result in a $59 increase in monthly benefits for the average retired worker on Social Security.

In particular, the average retirement check will rise from $1,848 to $1,907. The estimated payment for a couple receiving benefits from both partners will rise from $2,939 to $3,033, a $94 increase.

Since 1975, the Social Security Administration (SSA) has tied cost-of-living adjustments to the Consumer Price Index for urban wage earners and clerical workers (CPI-W). To calculate the COLA, the SSA compares the prior year’s third-quarter CPI-W to the current year’s third-quarter CPI-W. The COLA is then adjusted based on the difference in CPI-W from one year to the next.

2. Increase in the maximum taxable earnings

The maximum earnings subject to Social Security taxes in 2023 were $160,200. That is, workers who contribute to the system are taxed on wages up to this amount, typically at a rate of 6.2%. The maximum earnings will rise to $168,600 in 2024, meaning that more of a worker’s income will be taxed. This adjustment is the result of an increase in average wages in the United States.

3. The maximum Social Security benefit is also set to rise.

As expected, the maximum Social Security benefit for a worker reaching full retirement age will rise from $3,627 to $3,822 in 2024. It’s worth noting that this maximum applies only to those who retire at the full retirement age, which is 67 for anyone born after 1960.

Benefits are reduced for those who retire before reaching the full retirement age, so the maximum will be different. The same is true for those who retire after reaching full retirement age, which is a strategy that can maximize your benefit check.

4. The average benefit for spouses and disabled workers is also rising.

In 2024, the average benefit will rise across the board, including benefits for widows, widowers, and the disabled. Here’s how those numbers break down:

—According to the Social Security Administration, the average widowed mother with two children will see an increase from $3,540 to $3,653.

—The benefits for elderly widows and widowers living alone will increase from $1,718 to $1,773.

—The benefit for a disabled worker with a spouse and one or more children will increase from $2,636 to $2,720.

Those are, of course, averages, and individual circumstances will vary.

5: Social Security modifies earnings test exemption amounts

If you claim your retirement benefits before reaching full retirement age, Social Security will deduct some benefits from your check if you earn more than a certain amount. It’s known as the retirement earnings test exempt amounts, and it can claim a significant portion of your benefits if you’re still working. Here’s how it’ll be in 2024.

If you begin collecting Social Security benefits before reaching full retirement age, you can earn up to $1,860 per month ($22,320 per year) in 2024 before the SSA begins withholding benefits at a rate of $1 for every $2 over the limit. The maximum exempt earnings in 2023 were $1,770 per month ($21,240 per year).

This rule still applies in the year you reach full retirement age, but only until the month you reach full retirement age, and on much more forgiving terms. In 2024, you can earn up to $4,960 per month ($59,520 per year) before benefits are withheld, with benefits deducted at a rate of $1 for every $3 earned above the limit (rather than every $2). The threshold in 2023 was $4,710 per month ($56,520 per year).

Medicare Part B premiums increase

While Social Security and Medicare are separate programs, the vast majority of retirees participate in both, and many have their Medicare Part B premium deducted automatically from their Social Security check.

Monthly premiums for Medicare Part B will rise from $164.90 in 2023 to $174.70 in 2024. The annual Part B deductible will also increase by $14 next year, from $226 in 2023 to $240 in 2024.

The bottom line

As inflation persists, the 2024 Social Security COLA provides retirees and others with a higher-than-average boost to their benefits. However, this isn’t the only change to the program; other levels and thresholds have also been adjusted to account for ongoing inflation.