Social Security has been a constant for American retirees for nearly nine decades. But it has nonetheless changed through the years. Some of those changes have been more helpful than others.
It will be a similar story for the federal program next year. Here are the two best big changes coming to Social Security in 2024 — and the one worst change.
Best change No.1: Increased benefits
One change to Social Security appears to be the hands-down winner as the best of all. Retirees will enjoy increased benefits beginning in January 2024.
Last month, the Social Security Administration (SSA) announced a cost-of-living adjustment (COLA) of 3.2%. This COLA is intended to help prevent the erosion of the buying power of Social Security benefits resulting from inflation.
The 3.2% increase will be much smaller than the 8.7% increase retirees received in 2023. However, the pace of inflation has also slowed somewhat. And even though it’s lower than this year’s adjustment, the upcoming COLA will still be the third-highest in the last 11 years.
There are a couple of negatives with this positive Social Security change. The increased benefits will come too late to help retirees cover the higher bills they’ve already had to pay in 2023. Also, the COLA might not be enough to fully offset the higher prices that seniors must pay, especially with rising healthcare costs.
Best change No. 2: Higher earnings limits for early retirees
Another Social Security change will help many seniors next year. The earnings limits for workers who begin receiving retirement benefits before their full retirement age (FRA) will be higher in 2024.
SSA deducts $1 from benefits for every $2 earned above a specified threshold for anyone who begins receiving Social Security before their FRA. That threshold was $21,240 in 2023. Next year, it will increase to $22,320.
During the year a person reaches the FRA, benefits will be reduced by $1 for every $3 earned above another specified limit. This limit was $56,520 in 2023. It will increase to $59,520 in 2024.
When workers reach their FRA, the previously deducted benefits will start to be repaid. However, this Social Security change will mean more disposable income for many individuals who claim retirement benefits early but continue to work.
Worst change: More earnings subject to payroll taxes
There is one Social Security change that some Americans won’t like very much. Why? They’ll have to pay more taxes.
Currently, only the first $160,200 of income is subject to the Federal Insurance Contributions Act (FICA) payroll tax that helps fund Social Security and Medicare. This maximum taxable earnings limit will increase to $168,600 beginning in January 2024 — a 5.2% jump.
Most people won’t be affected by this backdoor tax increase, though. There aren’t any readily available numbers of how many Americans make more than $168,600. However, around 11.5% of U.S. households earned $200,000 or more in 2022, according to Statista. Another 8.7% of households generated income of between $150,000 and $199,999.
Dishonorable mention: the worst non-change for Social Security
While those are the two best Social Security changes and the worst change on the way, there’s another thing about the program that won’t change that deserves a dishonorable mention. Another year will go by without anything being done to prevent Social Security’s insolvency.
The nonpartisan Congressional Budget Office projects that Social Security’s combined trust funds will run out of money in 2033. After that point, benefits will have to be cut by 25% unless something is done to bolster the program’s finances.