Major Changes Coming to Social Security in 2024: What You Need to Know
By Doug Young – 19 November 2023
Introduction
Social Security, established in 1935, has long been a crucial pillar of retirement income for millions of Americans. However, with the decline of pensions and a retirement savings crisis, the importance of Social Security has only grown.
As we look ahead to 2024, five major changes are set to impact Social Security, affecting millions of people nationwide.
Retirement Savings Crisis
In today’s landscape, retirement savings are alarmingly low. According to recent surveys, an astonishing 70% of respondents have less than $115,000 saved for retirement.
With pensions becoming increasingly rare, this leaves many individuals heavily reliant on Social Security as their primary source of retirement income.
Change #1: The Social Security Quarter
To be eligible for Social Security benefits, individuals need to accumulate a minimum of 40 quarters of coverage.
Each year, the Social Security Administration sets a quarter threshold. In 2024, the quarter amount will be $1,730, meaning individuals need to earn at least $1,730 to earn one quarter of coverage.
This change ensures that individuals have the necessary quarters to qualify for a basic benefit.
Change #2: Maximum Taxable Income
Currently, individuals pay Social Security taxes on their income up to a certain limit. In 2020, this limit was $160,200.
However, in 2024, the maximum taxable income will increase to $168,600. This means that higher-income individuals will contribute slightly more to the Social Security system, affecting less than 7% of the population.
Change #3: The Earnings Test
For those who choose to take Social Security benefits before reaching full retirement age, there is an earnings test in place. This test determines how much income beneficiaries can earn without impacting their Social Security benefits.
In 2024, the earnings thresholds will change, with a low amount of $2,320 and a higher amount of $59,520. If individuals exceed these thresholds, a portion of their benefits will be withheld based on a specific formula.
Change #4: Cost of Living Adjustment (COLA)
To protect Social Security benefits from the effects of inflation, a cost of living adjustment (COLA) is implemented annually.
In 2024, the COLA will be 3.20%, which will be applied to Social Security, Supplemental Security Income (SSI), and Social Security Disability Benefits. This adjustment aims to ensure that benefits keep pace with rising living costs.
How Benefits are Calculated
The calculation of Social Security benefits is based on several factors.
The top 35 years of earnings are indexed to account for inflation, and the average index monthly earnings are determined. This figure is then applied to bend points to calculate the primary insurance amount.
The age at which benefits are claimed also affects the final benefit amount, with early claimants receiving reduced benefits and delayed claimants potentially receiving higher benefits.
Change #5: Maximum Social Security Benefit
The maximum benefit amount is the highest payment an individual can receive based on their earnings history. It is important to note that only a small percentage of people receive the maximum benefit.
In 2024, the maximum benefit for new retirees will increase, depending on their retirement age.
Conclusion
As 2024 approaches, it is important for individuals to understand the significant changes coming to Social Security.
The retirement savings crisis, along with the five major changes discussed, underscores the importance of proactive retirement planning.
Staying informed and seeking professional guidance are essential steps in navigating these changes and ensuring a secure financial future. By being aware of these adjustments, individuals can make informed decisions when it comes to their Social Security benefits and retirement planning.
The Alarming Extent Of The Retirement Crisis that Americans Are Facing Today
Disclaimer: The information provided in this article is for general informational purposes only and should not be considered as financial or retirement planning advice. It is always recommended to consult with a qualified financial professional or advisor regarding individual circumstances.
