Social Security is changing in important ways next year, including higher monthly payments and more Social Security taxes for top earners.
In 2024, Social Security is going to look different in important ways. That’s because there are some automatic changes built into the program that happen every year.
Wondering what’s going to happen? Here are four big changes you can expect to see.
1. Social Security beneficiaries are getting a raise
One of the biggest changes that will affect most retirees is a cost-of-living adjustment (COLA). When a Consumer Price Index report shows prices are increasing, Social Security beneficiaries receive an increase in their benefits. In 2024, specifically, there will be a 3.2% increase in monthly payments.
However, most retirees won’t see this full benefits increase. Those who have Medicare Part B premiums withdrawn from their checks (which is most seniors) are getting hit with a $9.80 premium increase as monthly costs jump from $164.90 in 2023 to $174.70 in 2024. This will reduce the extra money seniors get in their checks due to the COLA.
2. The maximum monthly Social Security benefit is increasing
Another big change is an increase in the maximum Social Security benefit that Social Security will pay out.
For newly retired workers, it’s increasing from $4,555 per month in 2023 to $4,873 per month in 2024. A maximum benefit exists because benefits are based on average wages — but only for those who subject to Social Security taxes. Not all wages are subject to those taxes. High earners don’t pay Social Security taxes on income earned above a certain threshold and that excess income doesn’t count in the benefits calculation formula.
To get the maximum monthly benefit, workers must have at least a 35-year career history in which they earned the maximum taxable income and they must wait to claim their benefits until age 70. Those who meet these requirements will see a higher maximum benefit in 2024.
3. Some workers will pay more Social Security taxes
As mentioned above, only wages up to a certain threshold are taxed and count when benefit amounts are calculated.
Specifically, workers pay Social Security taxes on all their earnings up to something called the “wage base limit.” Income earned above that limit isn’t subject to Social Security taxes or factored in when benefits are calculated. This cap on taxable earnings exists to prevent people who make a lot of money from getting huge Social Security checks.
In 2024, the wage base limit is going up (as it does most years). Next year, workers will pay Social Security tax on up to $168,600 in earnings, up from $160,200. This means a high earner could owe Social Security taxes on as much as $8,400 in extra income next year compared with 2023.
4. You can earn more working before Social Security benefits are affected
Finally, retirees who work before full retirement age (FRA) will be allowed to earn a little more money next year before they find themselves forfeiting some of their Social Security.
See, retirees who work while claiming Social Security prior to full retirement age temporarily lose $1 in benefits for every $2 earned above $21,240 in 2023 if they won’t hit FRA at all during this year. If they will reach FRA at some point in the year, they lose $1 in benefits for every $3 earned above $56,520. In 2024, those limits are going up to $22,320 and $59,520 respectively.
It’s important for both current and future retirees to know about these changes so they can better understand what to expect from Social Security next year.