Social Security may not seem like the most exciting topic, but it’s essential to understand as you approach retirement—especially if you’re not independently wealthy. For many retirees, Social Security is a lifeline. In fact, for 12% of men and 15% of women aged 65 and older, Social Security provides more than 90% of their income. For many others, Social Security represents at least half of their income.
With the average monthly retirement benefit sitting at just $1,920, or about $23,000 a year, these benefits are critical for millions of Americans. Luckily, Social Security adjusts over time, and in 2024, several key changes are on the horizon. Let’s break them down.
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COLA
A significant change to Social Security in 2024 is the Cost of Living Adjustment (COLA). This is an annual increase aimed at helping beneficiaries keep up with inflation. The COLA for 2024 is set at 3.2%, which is smaller than the historic 8.7% increase in 2023 but still meaningful. These adjustments may seem small, but they add up over time. For instance, a 3.2% increase on a $2,000 monthly benefit would add about $64 a month, totaling $768 more over the year.
Here’s a table showing past COLA increases:
| Year | COLA Increase |
|---|---|
| 2015 | 1.70% |
| 2016 | 0% |
| 2017 | 0.30% |
| 2018 | 2% |
| 2019 | 2.80% |
| 2020 | 1.60% |
| 2021 | 1.30% |
| 2022 | 5.90% |
| 2023 | 8.70% |
| 2024 | 3.20% |
If you want to maximize your Social Security benefits, it’s generally recommended to delay claiming until age 70. This strategy allows you to benefit from compound COLA adjustments over the years, leading to a more significant overall increase.
Earnings Cap Increase
Another change to Social Security in 2024 involves the earnings cap. Not all income is subject to Social Security taxes, as earnings over a certain threshold are exempt. In 2024, that threshold is $168,600. This means if you earn more than this amount, you won’t pay Social Security taxes on the excess income. Although some argue this cap is unfair and favors wealthier individuals, it remains in place for now. The earnings cap is expected to rise in 2025, with the new number to be announced later this year.
Earnings-Test Limit Adjustment
If you’re still working while claiming Social Security before your full retirement age (66 or 67, depending on your birth year), you’ll want to know about the earnings-test limit. This limit determines how much you can earn before your Social Security benefits are reduced.
In 2024, if you’re below full retirement age, your benefits will be reduced by $1 for every $2 you earn over $22,320. However, if you reach full retirement age in 2024, the threshold is a more generous $59,520, with a reduction of $1 for every $3 earned over the limit. The good news? Once you hit full retirement age, these reductions are recalculated, so you won’t lose money permanently.
Maximum Benefit Increase
The maximum monthly benefit is also increasing. In 2024, the maximum monthly Social Security benefit for those claiming at full retirement age is $3,822, or $45,864 annually. This amount will increase slightly in 2025. While there are ways to maximize your Social Security benefit—like delaying your claim until age 70—it’s difficult to hit the maximum, which underscores the importance of strategic planning.
Social Security Taxes
While Social Security benefits are taxable at the federal level for many people, state taxes on these benefits vary widely. In 2017, 37 states did not tax Social Security benefits. That number has risen to 41 states and the District of Columbia as of 2024. Recently, Kansas, Missouri, and Nevada joined the ranks of states not taxing Social Security benefits, and it’s possible that even more states will follow suit in the coming years.
Wrapping Up
Social Security is a crucial source of income for millions of Americans, and staying informed about changes is essential to making the most of your benefits. With a 3.2% COLA increase, higher earnings caps, and adjustments to the earnings-test limit, there are plenty of updates to consider in 2024. If you’re nearing retirement or already receiving benefits, it’s a good idea to review these changes and plan accordingly. After all, every dollar counts in retirement!
FAQs
How much is the COLA increase for 2024?
The COLA increase for 2024 is 3.2%.
What is the earnings cap for Social Security taxes in 2024?
The earnings cap for 2024 is $168,600.
Will my benefits be reduced if I work while receiving Social Security?
Yes, benefits may be reduced if you earn above the earnings-test limit.
What is the maximum Social Security benefit in 2024?
The maximum monthly benefit is $3,822 at full retirement age.
Do all states tax Social Security benefits?
No, 41 states and D.C. do not tax Social Security benefits.
