Navigating Social Security isn’t always easy, largely because things keep changing. Not being aware of the changes can put a dent in retirement finances, according to a recent article, “3 Social Security Changes Retirees Need to Know About in 2024,” from Nasdaq.com. Anyone receiving benefits in 2024 should be aware of these changes.
Monthly benefits are higher due to inflation. After a long period when inflation was seemingly gone, we’re now experiencing both inflation and shrinkflation (packages becoming smaller while prices increase). The Social Security Administration has a built-in tool to respond to inflation: the Cost of Living Adjustment, or COLA.
Every year, Social Security benefits are adjusted to account for inflation. The increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of inflation monitoring costs of necessities: food, housing, and transportation. The average of the CPI-W for July, August, and September are compared to the prior year’s average inflation to arrive at the rate. Estimates for 2025 aren’t released until October, but early estimates expect it to be 2.6%. In 2024, the COLA was 3.2%.
Adjustments in 2024 increased the amount you can earn if you take benefits early. Some of your benefits may be withheld if you take Social Security benefits before reaching Full Retirement Age (FRA). If you don’t reach FRA this year, the earnings limit is $22,320. Your monthly benefit will be reduced by $1.00 for every $2.00 earned over the limit. However, if you reach FRA this year, the earnings limit is $59,520, with benefits reduced by $1.00 for every $3.00 above the threshold.
Note that these benefits aren’t permanently lost. Once you hit FRA, the SSA recalculates your benefits and adds back the amount that had been withheld.
It’s become harder to reach Social Security’s maximum monthly benefit. The core formula is based on your top 35 earning years. To qualify for the maximum benefit, taxpayers need to do two things: delay benefits until they turn 70 and earn more than the wage base limit for the 35 years used in the calculations. In 2024, the wage-based limit will be $168,000, the highest income subject to Social Security taxes. After this much income has been earned, there are no Social Security taxes.
Wage base limits change often, so if you want to reach the maximum monthly benefit, keep track of these changes and your income.
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Reference: Nasdaq.com (July 29, 2024) “3 Social Security Changes Retirees Need to Know About in 2024”