by Jean Miller | Accounting News, News, Newsletter, Social Security
As of January 1, 2024, a series of Social Security changes took effect, influencing both the benefits received by beneficiaries and the eligibility criteria. Whether you’re currently a beneficiary or in the process of applying this year, you’ll want to be aware of these significant changes. In this article we’ll go over the most important points to know.
New Year, Bigger Checks
Annually, the Social Security Administration (SSA) implements a cost-of-living adjustment (COLA) to ensure beneficiaries can keep up with rising expenses. The adjustment considers the percentage shift between average prices in the third quarter of the present year and the third quarter of the preceding year.
The COLA for 2024 is 3.2%, so monthly payments for recipients increased by that amount beginning in the new year. According to the SSA, that’s an average monthly increase of about $50.
When it comes to the timing of your payment, it still depends on your date of birth, adhering to Social Security’s standard payment schedule. Typically, if your birthday falls within the first through 10th day of the month, your payment will be processed on the second Wednesday. For those with birthdays between the 11th and 20th day of the month, payments are scheduled for the third Wednesday. If your birthday occurs after the 20th day of the month, you can expect your payment on the fourth Wednesday.
New Year, High Social Security Taxes
Because the Social Security tax wage base also increased by 5.2%, wealthy taxpayers could be subject to higher taxes. The Social Security tax wage base for 2024 is $168,600, which is up from $160,200. This means that some workers will be paying about $521 more in Social Security taxes than they would have paid if the wage base didn’t increase. Additionally, self-employed workers are taxed at 12.4%, meaning they could owe an extra $1,041.60.
Full Retirement Age and the Earnings Test
There are two significant factors to be mindful of when it comes to Social Security benefits: full retirement age (FRA) and the earnings test.
While you can begin receiving benefits as early as age 62, you become eligible for full benefits upon reaching the FRA, determined by your birth year.
For instance, if you were born in 1962, you would reach your FRA at 67 years old. However, if you were born in 1964, your FRA would be 67 years and 8 months, requiring an additional eight months of patience compared to those born in 1962. This illustrates how FRA varies based on the year of birth, impacting when individuals become eligible for full Social Security benefits.
As for the Social Security earnings test, this becomes relevant if you’re still working and earning income while receiving Social Security and have yet to hit FRA (it’s also why many experts suggest holding off until FRA).
Essentially, surpassing a specified income threshold triggers the SSA to withhold a certain amount above that limit. In 2024, for workers who won’t reach FRA the entire year, the earnings test cap is $22,320. This means $1 in Social Security benefits will be withheld for every $2 in earnings that exceed $22,320. For workers who will reach FRA at some point during the year, the earnings test cap is $59,520. This means $1 in Social Security benefits will be withheld for every $3 in earnings that exceed $59,520.
Keep in mind, this is just a temporary hold. Once you hit FRA, your benefit checks will factor in those temporary withholdings. Also note that earnings from investments or payouts from retirement plans, for instance, are not considered in the earnings test.
by Daniel Kittell | Accounting News, News, Retirement, Retirement Savings
Every October, retirees and individuals planning for their retirement expect the Social Security Administration to announce the cost-of-living adjustment (COLA) for the following year. The COLA aims to counteract the eroding effects of inflation on retirees’ purchasing power. In this article, we go over how the anticipated COLA for 2024 could affect American retirees.
Understanding the COLA
The COLA for Social Security benefits is determined each year by using a specific formula that takes into account changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is a measure of inflation that reflects the average change in prices paid by urban consumers for a predetermined “market basket” of goods and services. The goal of COLA is to ensure that Social Security benefits keep up with the rising cost of living, so that the purchasing power of beneficiaries is maintained over time.
Anticipated COLA for 2024
The exact COLA for 2024 will not be officially announced until October, but early predictions suggest a raise of 3% for 2024. That would boost the average Social Security retirement benefit by about $55 a month in 2024.
COLA Fluctuation
A 3% raise would be a significant shift from the previous two years, which saw COLA adjustments at 5.9% and 8.7%. These adjustments raised the average retirement benefit by $92 in 2022 and $146 this year. Compared to these percentages, some might consider a 3% raise a disappointment, but it’s important to remember that annual COLA calculations are meant to offset the price increases consumers have faced since the previous year’s COLA was determined. Therefore, a 3% raise would be a sign that inflation is cooling.
It’s also important to point out that a 3% raise is still above average. Looking at the last two decades, the average inflation adjustment for Social Security benefits was 2.6%, and three of those years – 2010, 2011, and 2016 – saw no adjustment at all. Even so, when comparing this year’s 8.7% hike to the projected 3% for next year, retirees on a tight budget will feel the difference.
How Social Security Beneficiaries Can Still Benefit
Retirees may be temporarily profiting from the COLA raises in these latter years, and those who are able to increase savings for the remainder of 2023 are in a position to benefit. With 15-year highs in interest rates on certificates of deposit and money market savings accounts, retirees may want to think about transferring available assets to these safe saving vehicles as they offer a better rate of return than traditional savings accounts.
by Pete McAllister | Accounting News, News, Retirement, Social Security
Retirees are feeling the effects of soaring inflation, and it’s stretching their budgets. More than 70 million retired Americans depend on a Social Security benefit program as a source of income, especially during economic downturns, so annual changes to payouts are always expected. Read on to learn what’s in the cards for Social Security benefits next year, including a higher payout.
COLA Boost
Get ready for a historic increase to 2023’s cost-of-living adjustment (COLA). 2022 saw an adjustment of 5.9%, which was already uncommonly high, but in 2023 monthly checks will increase by 8.7%. That’s approximately $146 per month ($1,752 per year) for the average retiree. This is the highest COLA increase since 1981. All retirees currently receiving Social Security benefits will see this increase in January of 2023.
Maximum Taxable Earnings Will Increase
Due to an increase in average wages, Americans will see more Social Security taxes taken from paychecks in 2023 because more of their income will be liable for the tax. Maximum earnings subjected to Social Security taxes will increase from $147,000 in 2022 to $160,000 in 2023. This means that workers paying into the system are taxed on wages up to this amount, typically at the 6.2 percent rate.
Maximum Social Security Benefit Also Set to Increase
The maximum benefit for retired workers who claim Social Security at full retirement age — which is 67 for anyone born after 1960 — will be $3,627 in 2023, up 8.4% from $3,345 in 2022. Take note that the maximum benefit will be different for those who claim benefits before the full retirement age, and the same can be said for those who claim benefits after the full retirement age. For instance, if you begin claiming benefits at age 62, your maximum monthly benefit in 2023 will be $2,572. On the other end of the spectrum, if you begin claiming benefits at age 70, your maximum monthly benefit in 2023 will be $4,555.
Work Credits Will Be Harder to Reach
In order to earn retirement benefits, workers must accumulate at least 40 work credits during the whole of their careers. The maximum number of credits eligible to be earned per year is four, and the value of each credit fluctuates from year to year. In 2023, a single credit will be worth $1,640, up from $1,510 in 2022. Thus, workers will need to earn more income in order to collect the credits they need to retirement benefits.
