What’s New for Social Security in 2024?

Social Security will boost benefit checks in 2024 by 3.2% beginning January 1, 2024,as stated in a recently published Social Security Fact Sheet.* This is over 50% lower than last year’s cost-of-living adjustment (COLA).  The good news is that inflation is down to 3.2% as of the end of October 2023 and the expected 3.2% COLA is the 3rd largest COLA increase in the past twelve years. The COLA will apply to veteran’s disability benefits and retirement pay, also.

What Does This COLA Increase Mean for Retirees?

While the average monthly Social Security benefit will increase by $59, the increase to the Part B Medicare premium of $9.90 per month will eat into this monthly benefit increase. Still, inflation is lower and that is good news for retirees, especially since at least 14% rely solely on Social Security for 90% or more of their income and at least another 21% rely on Social Security for 75% percent or more of their income. As a group, 75% of all retirees rely on Social Security for at least 50% of their income.

Higher Maximum Benefits

Retirees who were higher earners while working and previously hit the maximum benefit amount, will likely see their benefit increase as the maximum Social Security benefit for someone retiring at full retirement age will increase in 2024 from $3,626 to $3,822. This maximum applies to people who begin their Social Security benefits at the full retirement age, 67 or slightly greater, for anyone born after 1960. About 2% of retirees qualify for the maximum monthly benefit of $3,627, a monthly increase of $282.

Inflation and Your Social Security Benefits

Recent inflation, combined with Medicare cost increases means that most retirees may need to rethink their budgets and make adjustments to their expectations. Workers near retirement may need to postpone retirement a bit longer. Retirees who need to take required minimum distributions (RMD’s) from 401(k)’s, may need to consider not taking an amount beyond that minimum, however tempting it may be. Reinvesting a portion of RMD’s may be prudent for many retirees and it will help them keep up with future inflation. 

Retirees who have investments and savings need to remain partially invested in the stock market they are already doing so. If current investments tend to be in fixed income, then investing partially in equities is likely to be a smart move for many retirees. Retirees cannot afford not to be in the stock market to some extent. That is the best way to stay ahead of inflation.  For some retirees, working part-time during retirement will be part of their strategy.  For others, reduced spending or a combination of solutions will be the answer.

Whatever you have invested now will impact what you have in 5, 10, even 20 years out. So, minimizing spending when the market is down and inflation is up - while painful – is likely to pay off in the long-run for those whose retirement income is more modest. If bigger withdrawals from your investments and savings happen now, those actions will erode the amount of money you have in the long-run.

Lakehouse Family Wealth believes retirees need to keep their eyes on a long-term horizon and remain invested in equities, to some extent, as appropriate for each client. We work with each client to create a portfolio that makes sense for their given situation and that usually includes investments for the long-term that will help clients stay ahead of inflation and minimize effects of other headwinds in retirement.

How Do You Find Out the Amount of Your 2024 Social Security Check? 

You will receive a COLA notice from the Social Security Administration during the month of December. This applies to retirees and those receiving survivors, disability, and SSI payments. Or you may log into My Social Security to view your information online.

More of Employee Income Will Be Subject to Social Security Taxes

The amount of your paycheck subject to the maximum Social Security taxes will go up to $168,600 in 2024. That is an increase from $160,200 based on an increase in the average wage in the U.S. Typically, workers paying into Social Security are taxed at the 6.25 rate. This means that workers with higher incomes will continue to pay more into Social Security. 

What If You Work During Retirement?

The amount you earn through work during retirement can limit your Social Security benefits if you earn over a certain amount. This is known as the retirement earnings test. You will forfeit $1 in benefits for every $2 you make over the earnings limit - this limit is $22,320 in 2024 for retirees younger than their full retirement age.  During the year a retiree reaches their full retirement age, the earnings limit will increase to $59,520. This means that  $1 from benefits is withheld for each $3 of earnings during that year in excess of the earnings limit, and then no amount is withheld beginning the month you reach full retirement age.**

Plan for What Does Not Change with Social Security

Some estimates say that Social Security will be able to pay full benefits through about 2034. Assuming that Congress does not correct the shortfall by then, and if the estimates are correct, suggest that benefits will drop to about 75-80% of current levels starting in 2034. While Congress may find a solution, it is known that Social Security is a spend-as-you-go program and may have an uncertain future. 

Lakehouse Family Wealth firmly believes that a sound financial plan, built around your family can be the key to financial success in retirement. We want our clients to achieve their goals during their working years and in retirement. We develop and revisit their long-term plans while considering the most common challenges retirees face such as inflation, investment risk, death of a spouse, longevity, long-term care needs and more. We work with clients early in their careers as well as those who are near or already in retirement to develop and refine their plan as it is appropriate for their situation. Contact us for a free assessment.

Sources:

*2024 Social Security Changes, Fact Sheet, Social Security Administration.

**Cost-of-Living Adjustment (COLA) Information for 2024, Social Security Administration.