Changes to Social Security in 2024 - Will You Be Affected?
By Don Drake, Connelly Law Offices, Ltd.
"Social Security is a crucial lifeline for many Americans, providing them with financial benefits that help them in their retirement years and when they are disabled," stated Attorney RJ Connelly III, a professional fiduciary and certified elder law attorney. "2024 will bring some significant changes to the Social Security program that could profoundly impact the finances of millions of Americans."
In September, we published a blog that discussed some of the proposed changes and projected the Cost of Living Adjustment (COLA) based on the inflation numbers. As we approach the end of the year, it's worth taking some time to reflect on these changes and analyze which changes will benefit and which will pose challenges to the beneficiaries.
"The changes coming to Social Security in 2024 will be a mixed bag for beneficiaries," said Attorney Connelly. "Some individuals will experience a bit of financial relief, while others may face challenges due to higher taxes and increased healthcare costs. It's critical to understand these changes and plan accordingly to ensure financial stability in the coming year. By doing so, beneficiaries can make informed decisions and devise a plan to minimize the negative consequences of these changes on future plans."
Cost of Living Adjustment
Although the 3.2 percent 2024 COLA is significantly lower than the 2023 COLA of 8.7 percent, which was the most significant adjustment in over 40 years, it is still slightly higher than the average annual increase of around 2.5 percent since the early 1990s.
"For those who claim Social Security at full retirement age (FRA) in 2024, the maximum benefit will be $3,822 per month, up from $3,627 in 2023," said Attorney Connelly. "It's important to note that the FRA is 66 years and six months for people born in 1957 and 66 years and eight months for those born in 1958, while people born from July 2, 1957, through May 1, 1958, will reach it in 2024."
And keep in mind that the COLA doesn't only apply to retirees. It also increases monthly payments for all types of Social Security and Supplemental Security Income (SSI), which is an SSA-administered benefit for individuals aged 65 and over who have very low income or are largely unable to work due to blindness or other disability. Below is the COLA table for those on SSI. Some states also provide a small supplement to federal SSI payments. These states include California, Delaware, the District of Columbia, Hawaii, Iowa, Michigan, Montana, Nevada, New Jersey, Pennsylvania, Rhode Island, and Vermont.
Social Security taxes
Social Security benefits, which provide financial assistance to retired and disabled individuals, are primarily funded by a tax on most workers' incomes. This tax rate is currently set at 12.4 percent and is levied on earned income up to a certain threshold. If you are an employee, you pay half of this tax rate (6.2 percent) through FICA (Federal Insurance Contributions Act) withholding from your paycheck, and your employer covers the other half. On the other hand, if you are self-employed, you must pay both shares of the tax as part of your annual tax return.
"It's worth noting that the tax rate has remained constant since 1990, but the amount of income that is subject to this tax changes annually to keep up with national wage trends," points out Attorney Connelly. "For example, in 2023, the Social Security tax applied to work income up to $160,200. However, in 2024, the threshold will increase to $168,600. Any earnings above this threshold are not taxed for the purpose of funding Social Security, nor is any income from investments."
Overall, the Social Security tax system serves as a crucial source of funding for many Americans, providing them with financial stability during their retirement years.
Medicare premiums
If you are a Medicare enrollee, it is highly probable that you pay premiums for Part B, which is part of the federal healthcare program that covers outpatient treatment and doctor visits. These premiums are generally deducted directly from your Social Security payments. In the event of an increase in Medicare premiums, it may compromise your cost-of-living adjustment.
"In 2023, beneficiaries were provided with a respite from that offset effect as a decline in Medicare premiums accompanied the big COLA," said Attorney Connelly. "However, the offset is back in 2024, and the standard monthly Part B rate is expected to rise from $164.90 to $174.70. This increase is likely to reduce the COLA gain by approximately $10 per month. So it's a giveth and taketh away scenario."
An Earnings Test
"If you are a Social Security beneficiary who continues to work, then you may be subject to a temporary withholding of a portion of your monthly payment," stated Attorney Connelly. "This earnings test applies to people who collect retirement, survivor, or family benefits, have not yet reached full retirement age, and have earnings above a certain level."
This threshold changes annually, in line with national wage trends. In the year 2024, beneficiaries who will not reach FRA (Full Retirement Age) until a later year will have $1 withheld from their Social Security payment for every $2 in work income above $22,320. This is an increase from $21,240 in 2023. For instance, if you have a job that pays $40,000 per year, your benefits for the year would be reduced by $8,840. This is half the difference between $22,320 and $40,000.
"If you reach FRA in 2024, Social Security will withhold $1 in benefits for every $3 in earnings above $59,520 until the month when you hit the milestone," adds Attorney Connelly. "After that, the earnings test expires, and no work-related deduction will be left. The SSA will then adjust your benefit upward so that, over time, you can recoup the prior withholding."
However, people receiving Social Security Disability Insurance (SSDI) face different income rules. SSDI is intended for people who are largely unable to work for an extended period due to a serious medical condition. As a result, you may lose it if your earnings reflect what the SSA calls substantial gainful activity.
"The income limit for most SSDI beneficiaries in 2024 is $1,550 a month, which is an increase from $1,470 this year," said Attorney Connelly. "Those receiving SSDI based on blindness are subject to a higher income limit of $2,590 a month in the coming year, an increase from $2,460 in 2023."
It's also important to know that your disability benefits will continue until you reach your full Social Security retirement age. This age is determined by your birth year and typically falls between 66 and 67 years old. Once you do reach your full retirement age, your SSDI benefits will automatically transition to Social Security retirement benefits. And, if you have been receiving SSDI benefits for at least 24 months, you probably already have Medicare coverage.
Qualifying for benefits
In order to become eligible for retirement benefits, it is necessary to collect Social Security credits. These credits can be obtained by doing "covered" work, which includes any job or self-employment work that involves paying Social Security taxes on your income. It is important to note that the amount of credits you earn increases with the income you generate. As of 2024, you will receive one credit for earning $1,730, which is $90 more than the level in 2023.
It is possible to earn up to four credits a year, which is equivalent to $6,920 in work income in 2024. However, it takes 40 credits or ten years of covered work to qualify for retirement benefits, and these ten years do not have to be consecutive. This means that even if you have gaps in your employment or self-employment history, you can still qualify for retirement benefits as long as you have accumulated enough credits.
If you are unable to work due to a medical condition, you may qualify for Social Security Disability Insurance (SSDI). However, you will also need to accumulate a certain number of credits to qualify for this program. The number of credits required to qualify for SSDI can range from six (for a year and a half of work) to 40, depending on how old you are when a medical condition sidelines you from work.
Spousal and Disability Benefit Increases
"The average benefits for widowed mothers with two children will experience a slight increase in 2024, going up to $3,653 a month from $3,540 in 2023," cited Attorney Connelly. "Similarly, aged widows and widowers living alone will see their average benefits rise to $1,773 a month from $1,718. For disabled workers with a spouse and one or more children, the average monthly benefit will increase to $2,720 from $2,636."
These benefits changes seem to align with the projected Consumer Price Index (CPI) increases over the same period. It is worth noting that these figures are just averages, and actual benefits may vary depending on an individual's specific circumstances.
A Final Note
As the number of elderly people in our society continues to increase, social security payouts have become a significant concern for many older adults. They worry about the adequacy of the payouts they will receive, and whether they will be able to support themselves in their retirement years.
"One of the major worries that many seniors have expressed is that the benefits they receive from Social Security are not enough to keep up with the rising costs of essential items, such as prescription medications and groceries," said Attorney Connelly. "These concerns are not unfounded, as studies have shown that Social Security benefits have significantly reduced purchasing power since the year 2000. In fact, a survey conducted in 2023 found that there has been a 36 percent decrease in purchasing power since the turn of the millennium."
The impact of the reduction in purchasing power on seniors' daily lives is quite significant. The survey's administrators provided an example to put things into perspective. In 2023, the average cost of a dozen eggs would be around $4.21 compared to just a dollar in 2000, according to the survey. This represents an increase of over 300 percent in the cost of eggs alone, which is just one of the essential goods that have seen a dramatic increase in price over the past two decades.
As prices continue to rise, seniors living on fixed incomes are facing financial challenges that can significantly impact their quality of life. To ensure that they can maintain their standard of living and enjoy their golden years comfortably, it's essential to plan ahead and create an estate plan and Medicaid plan. Such planning will help seniors receive the care they need while safeguarding their hard-earned assets and ensuring that their wishes are respected. By taking proactive steps and making appropriate arrangements, seniors can secure a worry-free and fulfilling life in their later years.
Please note that the information provided in this blog is not intended to and should not be construed as legal, financial, or medical advice. The content, materials, and information presented in this blog are solely for general informational purposes and may not be the most up-to-date information available regarding legal, financial, or medical matters. This blog may also contain links to other third-party websites that are included for the convenience of the reader or user. Please note that Connelly Law Offices, Ltd. does not necessarily recommend or endorse the contents of such third-party sites. If you have any particular legal matters, financial concerns, or medical issues, we strongly advise you to consult your attorney, professional fiduciary advisor, or medical provider.