If you have plans to retire in 2024 and are considering filing for Social Security benefits, there’s a lot to consider to ensure you make the right decision. Factors that can affect your monthly payment range from how much outside income you earn to where you live.
The one thing all Social Security recipients have in common is they’ll get a 3.2% cost-of-living adjustment (COLA) in 2024, which will kick the average monthly benefit up to $1,907 from $1,848 last year, according to the Social Security Administration.
You Might Face Federal Income Taxes
Social Security benefits are subject to federal income taxes based on your combined income. As CNBC reported, combined income is calculated by adding half your benefits with your adjusted gross income and nontaxable interest.
You could be liable for taxes on up to half of your benefits if your combined income is between $25,000 and $34,000 for individual tax filers, or between $32,000 and $44,000 for couples who are married and file jointly. Up to 85% of your benefits might be taxable if your individual combined income is more than $34,000 and you file individually, or if you’re married with more than $44,000.
You Might Also Face State Income Taxes
Most states don’t tax Social Security benefits, but some do. These are the 11 states that taxed Social Security benefits in 2023 and are expected to do the same in 2024: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah and Vermont.
One thing to keep in mind is that the taxes you face will differ from one state to the next. As previously reported by GOBankingRates, the following states reduce Social Security taxes based on age or income: Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Vermont and Utah.
Your Age Will Play a Big Part in Your Monthly Check
You become eligible for Social Security at age 62, but you’ll receive a reduced monthly payment by claiming benefits before your full retirement age, which varies by your date of birth. The longer you wait to claim benefits, the higher the monthly payment.
For those born in 1960 or later, full retirement age is 67. The average monthly benefit for a 62-year-old can range from $1,254.53 to $1,329.37, depending on your birth month. At 65 years old, the average ranges from $1,553.90 to $1,653.70. At 67 you get the full benefit you are owed, which is about $1,782 a month. At age 70 the average monthly check is $2,209.68. There’s no more financial advantage to waiting after 70 to collect. From there, it’s a matter of how far that money will go depending on your state.
An Earnings Test Could Come Into Play
If you claim Social Security benefits before reaching full retirement age and continue to work and earn above a certain threshold, you might be subject to the retirement earnings test. This could result in withheld benefits, so it’s important to understand these thresholds and how the earnings test limit could affect you.
The SSA occasionally puts in new earnings test limits regarding work income. For 2024, you will be able to earn up to $22,320 without any benefits being withheld.
Here’s how the earnings test limit works: If you are under full retirement age for the entire year, the SSA deducts $1 from your benefit payment for every $2 you earn above the annual limit. The SSA counts your earnings only up to the month before you reach your FRA — not your earnings for the entire year.
Once you reach FRA, $1 in benefits is deducted for every $3 you earn above a different limit. In 2024, the limit is $59,520.
