Social Security COLA Increase for 2024 and Other Possible SSA Changes
By Don Drake, Connelly Law Offices, Ltd.
"Economists say inflation is expected to increase slightly in August and September," said professional fiduciary and certified elder law Attorney RJ Connelly III. "They estimate that the cost-of-living adjustment (COLA) in 2024 will be around 3 percent. If true, this would result in an increase of approximately $65 per month for the average Social Security retirement benefit, which was $1,882 in June 2023."
"Over the past two years, retirees have experienced significant increases in their benefits due to inflation," said Attorney Connelly. "The cost-of-living adjustments (COLAs) during that time have been 5.9% and 8.7%, respectively. These are the largest benefit adjustments in percentage terms since the early 1980s. As a result of these adjustments, the average retirement benefit increased by $92 in 2022 and $146 this year."
The Social Security Administration (SSA) uses an inflation gauge to determine the annual cost-of-living adjustment (COLA). For July, this gauge rose at an annual rate of 2.6 percent. The agency will use three months of data to calculate the final COLA figure, which is expected to be announced in October.
"The Social Security Administration adjusts payments based on the annual increase in the Consumer Price Index (CPI), which has occurred every year since 2022," stated Attorney Connelly. "The exact amount of the 2024 Social Security COLA will be determined on October 12, 2023, when the final inflation numbers for the third quarter are released."
Changes Expected for 2024
"Keep in mind that the Social Security Administration (SSA) usually releases any updates to the Social Security program by mid-October each year as well," said Attorney Connelly. "Regrettably, this leaves only a limited window for those who may be affected to modify their financial strategies or estate plans accordingly. As a result, I advise our clients to prepare for these changes in advance and fully understand their potential consequences. After reviewing information from the Social Security Administration and on the Wall Street 24/7 and the ValueWalk sites, there are a number of updates predicted for 2024." Here are those expected changes:
Rise in Early Filers' Withholding Thresholds.
Retirees who choose to claim their Social Security benefits early face two penalties from the SSA. Firstly, their monthly payout is permanently reduced. Secondly, the SSA applies a retirement earnings test, which may result in the withholding of part or all of the benefits based on the beneficiaries' income.
For those who didn’t reach full retirement age (FRA) in 2023 and are still working, the SSA was allowed to withhold $1 in benefits for every $2 in earned income over $21,240 ($1,770 a month). However, if a beneficiary reaches their full retirement age in 2023, the SSA can withhold $1 in benefits for every $3 in earned income over $56,520 ($4,710 a month).
The good news is that the SSA’s withholding thresholds are expected to increase slightly in the coming year. This means that early filers will be able to receive some extra benefits without going through the retirement earnings test.
Qualifying for Credits May Get Harder.
To qualify for Social Security benefits, earning the required lifetime work credits is the primary eligibility criterion. One must obtain 40 lifetime work credits, with a maximum of four credits attainable in a year. As of 2023, a single credit equals $1,640 in earned income.
Therefore, an individual needs to earn approximately $6,560 in a year to obtain the maximum number of credits. Moreover, similar to other parameters, this threshold of earned income is also tied to inflation. It is anticipated that the threshold will increase next year, requiring a higher income to qualify for the credit.
Increase in Threshold Income for Disabled Individuals.
Aside from early filers, individuals with long-term disabilities may also expect an increase in their benefits next year. To qualify for continued disability benefits, a beneficiary must meet the income threshold. In 2023, people with disabilities (excluding blindness) can continue receiving benefits if their monthly income doesn't exceed $1,470. For blind Americans, the threshold income is up to $2,460 per month.
Wealthy Americans Will Pay More.
As of 2023, payroll taxes are applied to all income up to $160,200, which represents the highest amount of earnings that are subject to Social Security taxes. This cap increases each year based on the National Average Wage Index (NAWI), which is expected to rise again this year. However, it's worth noting that only 6% of taxpayers are impacted by this cap, while the remaining 94% won't be affected.
Maximum Monthly Benefit Will Likely Rise.
The Social Security Administration (SSA) sets a limit on the amount of earnings taxpayers are subject to the payroll tax. Similarly, the amount a beneficiary can receive each month at full retirement age (FRA) is also limited. As of 2023, the maximum monthly payout at FRA has increased by $283 to $3,627.
While the inflation rate is currently increasing moderately, it is expected that there will be a hike in the maximum monthly payout next year. However, only 2% of beneficiaries qualify for the maximum monthly benefit, similar to the top taxable earnings cap. In order to receive the highest possible monthly payout, beneficiaries need to meet specific requirements. These include waiting until they reach their Full Retirement Age (FRA) before beginning to collect benefits, having a work history of at least 35 years, and earning at or above the maximum taxable earnings cap for each of those 35 years.
"As older Americans continue to face the ongoing issue of high inflation, these benefits are more crucial now than ever before," stated Attorney Connelly. "The automatic adjustment feature is essential and needs to be a non-negotiable aspect of Social Security, as it ensures that the benefits do not diminish over time due to the persistent rise of prices. Should the projected increase change from the forecasted 3 percent, we will update the information for our clients and readers."
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