3 Major Social Security Changes Affecting Retiree Paychecks – Know the Benefits

Social Security reform is often discussed, and according to the latest Trustees Report, the Social Security retirement trust fund could be depleted by 2033 if Congress doesn’t act. This looming deadline might prompt significant changes.

Even minor policy adjustments can greatly benefit the millions of elderly individuals who rely on their monthly checks. As we head into 2024, here are three crucial Social Security changes that retirees should be aware of.

Maximum Benefit

In 2024, a select group of Social Security beneficiaries will receive a maximum monthly payment of $4,873, up from $4,555 in 2023. Achieving this maximum requires being 70 years old and having consistently earned above the maximum taxable earnings level for at least 35 years.

Cost-of-Living

The first factor contributing to the increased maximum benefit is the annual cost-of-living adjustment (COLA), which increases monthly benefits based on the average rise in inflation during the previous year’s third quarter. The second factor is how the Social Security Administration (SSA) calculates your monthly payment, which is based on your average wage. The SSA uses the Average Wage Index (AWI) to adjust your 35 highest-earning years for inflation, but only for earnings before age 60.

Wage Data Impact

Younger retirees who earn above the taxable maximum benefit more from recent wage data adjustments. This means their average monthly earnings and, consequently, their maximum benefits are higher. Thus, 70-year-olds in 2024 will receive larger maximum benefits due to higher average wages compared to last year’s 70-year-olds.

Early Claimers

Those who claim Social Security benefits before reaching full retirement age (FRA) can earn more in 2024 before the government withholds part of their benefits. The retirement earnings test withholds $1 for every $2 earned above the earnings limit for beneficiaries under FRA. The 2024 earnings test levels are $22,320 and $59,520, up from $21,240 and $56,520 in 2023.

Adjusted Benefits

Although benefits are withheld if your earnings exceed the limit, the government does not keep this money. Once you reach FRA, your monthly benefit is adjusted to account for the withheld amount. The retirement earnings test recalculates your benefits as if you had delayed claiming Social Security by one month for each month’s worth of benefits withheld. After reaching FRA, the earnings test no longer applies, and your monthly payment may revert to its normal level.

Payroll Tax Cap

In 2024, the Social Security payroll tax will apply to the first $168,600 of an employee’s earnings, a 5.3% increase from $160,200 in 2023. This rise significantly exceeds the current year’s COLA of 3.2%.

Impact

While most retirees won’t be directly affected, the increase in the taxable wage cap means more tax revenue for Social Security. As the SSA faces trust fund depletion, higher tax contributions will help fund retirement benefits. The SSA forecasts that only 6% of employees will earn above the salary cap, but the taxable earnings cap is tied to the average wage index, which measures average wage growth.

Wage Growth

As long as wage growth outpaces inflation, additional tax revenue will support the program, helping maintain current benefits for retirees. However, despite these temporary fixes, significant reforms are still needed to ensure the long-term viability of Social Security.

These three key changes to Social Security in 2024—higher maximum benefits, more flexible earning limits for early claimers, and an increased payroll tax cap—are crucial for retirees. Knowing these changes can help beneficiaries make informed decisions about their retirement and optimize their Social Security benefits.

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