Following the 2024 COLA adjustment, the Social Security Administration has announced two significant changes: a modification to the Full Retirement Age (FRA) for those born in 1959 and an increase in the taxable maximum earnings limit. Future retirees must remain aware of this and make appropriate plans since these modifications will affect when and how much they receive in benefits.
You should be aware of two significant Social Security adjustments whether you are retired or want to retire soon. The Social Security Administration (SSA) has announced two more significant adjustments that would impact millions of Americans after the much-discussed Cost-of-Living Adjustment (COLA) for 2024, which attempts to protect pensioners against inflation.
In this post, we’ll dissect these two recent developments, discuss how they will affect retirees, and offer helpful guidance on navigating them. This book will explain all you need to know about Social Security, regardless of whether you’re already retired, considering retirement, or simply have questions about how it operates.
Social Security Announces 2 More New Changes:
Depending on their age, income, and financial goals, retirees will be impacted by these Social Security reforms differently. Making the most significant decisions requires keeping educated, whether advising a loved one or nearing retirement. While the COLA will offer much-needed respite in a period of growing prices, the changes to the Full Retirement Age and the rise in the taxable earnings cap are significant revisions.
- COLA 2024: Social Security payments will rise 3.2% starting in January 2024.
- New Change 1: In 2024, the highest income liable to Social Security tax will rise to $168,600.
- The second new change is that in 2024, those born in 1959 will reach the Full Retirement Age (FRA), which will be 66 years and 10 months.
- Impact on Retirees: These changes will impact the timing and amount of benefits that retirees receive.
What Are the Changes in Social Security After COLA?
1. Cost-of-Living Adjustment (COLA) 2024:
Let’s briefly discuss the COLA before moving on to the other improvements. The third-largest COLA increase in the past ten years will occur in 2024 when Social Security benefits will increase by 3.2%. This change is intended to assist retirees in keeping pace with inflation, which has been a major worry as living expenses have increased, particularly for necessities like housing, groceries, and medical care.
An individual who now receives the average monthly Social Security retirement benefit of $1,837 will experience a rise in their monthly payment of around $59 in 2024. For retirees who depend on these benefits as their only source of income, this provides some respite even though it doesn’t wholly balance inflation.
2. The Social Security Tax Maximum Earnings Will Rise:
In 2024, the maximum income subject to Social Security tax will be $168,600, up from $160,200 in 2023. According to this rule, those who make more than $168,600 in 2024 will only be required to pay Social Security taxes on the first $168,600 of their income,
For those who are still employed and contributing to Social Security, this modification has a direct effect on their tax liability. Employers and workers share Social Security taxes, each contributing 6.2% of earnings up to the taxable limit. People who work for themselves are responsible for paying the entire 12.4%.
Due to this rise, higher earnings will mean more social security taxes must be paid. But, because Social Security payments are determined using your top 35 years of earnings, it also helps them receive more considerable benefits when they retire.
Assume you make $175,000 annually. You would have only paid taxes on the first $160,200 earnings in 2023. However, in 2024, you will pay a little more in Social Security taxes since you will be taxed on up to $168,600.
Benefits for persons who have already retired are unaffected by this change. Future retirees are impacted, though, particularly those in upper-income levels.
3. Full Retirement Age (FRA) Adjustment for 2024:
The progressive decrease in the Full Retirement Age (FRA) is another significant development for pensioners. You can start receiving 100% of your Social Security retirement benefits at the FRA. The FRA in 2024 will be 66 years and 10 months for anybody born in 1959. The amount of Social Security payments you will get is determined mainly by your FRA. Receiving benefits before achieving the FRA will result in a reduction in your monthly payments. However, delaying benefits past the FRA (till age 70) will raise your monthly payout.
For example, starting to receive benefits at age 62, the earliest age at which they are accessible may result in a monthly payout of 30% lower than waiting until you reach full retirement age.
You will receive around 70–75% of your monthly payment if you begin receiving benefits at 62, even if your FRA is 66 and 10 months old. However, your payout will be more significant if you wait until 70 because of delayed retirement credits, which increase by around 8% annually after your FRA. For those born after 1960, the full retirement age will gradually increase to 67.
How Do You Feel About These Changes?
Understanding these shifts is essential for retirees’ financial planning, both present and future. Here’s how to get ready:
- If you are still employed, you may contribute more to Social Security in 2024 due to the rise in the taxable limit. Consider how this could impact your retirement plans because it may result in considerable future benefits.
- If you’re almost ready to retire, Pay attention to your FRA. Delaying your claim might increase your monthly income if you get close to full retirement age. But be aware that filing early can result in a smaller monthly payout if you need the money sooner.
- If you’re retired already: Even while these changes won’t directly impact you, keeping yourself informed is still a good idea, particularly if you’re counseling younger family members or making future financial decisions that depend on your benefits.
