
If you’re retired or planning to retire soon, there are two major Social Security updates you need to be aware of. After the much-talked-about Cost-of-Living Adjustment (COLA) for 2024, which aims to cushion retirees against inflation, the Social Security Administration (SSA) has announced two additional significant changes that will affect millions of Americans.
In this article, we’ll break down these two new changes, explain how they’ll impact retirees, and provide you with practical advice on how to navigate them. Whether you’re already retired, thinking about retirement, or just curious about how Social Security works, this guide will walk you through everything you need to know.
Social Security Announces 2 More New Changes
These changes in Social Security will affect retirees differently depending on their age, income, and financial plans. Whether you’re approaching retirement or advising a loved one, staying informed is key to making the best decisions. The increase in the taxable earnings limit and adjustments to the Full Retirement Age are important updates, while the COLA will provide much-needed relief in an era of rising costs.
Topic | Key Details |
---|---|
COLA 2024 | A 3.2% increase in Social Security benefits, effective from January 2024. |
New Change 1 | The maximum earnings subject to Social Security tax will increase to $168,600 in 2024. |
New Change 2 | Full Retirement Age (FRA) for those born in 1959 will be 66 years and 10 months in 2024. |
Impact on Retirees | These changes will affect when and how much retirees receive in benefits. |
Source | For more information, visit the Social Security Administration’s official website. |
What Are the Changes in Social Security After COLA?
Cost-of-Living Adjustment (COLA) 2024: A Brief Recap
Before we dive into the two additional changes, let’s quickly touch on the COLA. For 2024, Social Security benefits will rise by 3.2%, marking the third-largest COLA increase in the last decade. This adjustment is made to help retirees keep up with inflation, which has been a significant concern due to rising living costs, especially for essential needs like healthcare, groceries, and housing.
To put this into perspective, a person receiving the average Social Security retirement benefit of $1,837 per month will see their monthly payment increase by about $59 in 2024. While this doesn’t entirely offset inflation, it offers some relief for retirees who rely on these benefits as a primary source of income.
Now, let’s look at the two new changes.
Maximum Earnings Subject to Social Security Tax Will Increase
In 2024, the maximum earnings subject to Social Security tax will increase to $168,600, up from $160,200 in 2023. This means that anyone earning more than $168,600 in 2024 will only pay Social Security taxes on the first $168,600 of their income.
Why Does This Matter?
For those still working and paying into Social Security, this change directly impacts how much you’re taxed. Social Security taxes are split between employees and employers, with each paying 6.2% on wages up to the taxable maximum. Self-employed individuals must cover the full 12.4% themselves.
For higher-income earners, this increase means paying more in Social Security taxes. However, it also contributes to potentially higher benefits when they retire, as Social Security benefits are calculated based on your highest 35 years of earnings.
Practical Example:
Let’s say you earn $175,000 a year. In 2023, you would only have been taxed on the first $160,200 of your earnings. But in 2024, you’ll be taxed on up to $168,600, which means you’ll pay slightly more in Social Security taxes.
For those already retired, this change doesn’t affect your benefits. However, it does impact future retirees, especially those in higher income brackets.
3. Full Retirement Age (FRA) Adjustment for 2024
Another important change for retirees is the gradual shift in the Full Retirement Age (FRA). The FRA is the age at which you can claim 100% of your Social Security retirement benefits. For anyone born in 1959, the FRA in 2024 will be 66 years and 10 months.
Why Does FRA Matter?
Your FRA plays a significant role in determining how much you’ll receive in Social Security benefits. If you claim your benefits before reaching the FRA, your monthly payments will be reduced. On the other hand, delaying benefits past the FRA (up until age 70) increases the amount you receive each month.
For example, if you decide to start receiving benefits at 62 (the earliest possible age), your monthly payment could be as much as 30% lower than if you waited until your full retirement age.
Practical Example:
If your FRA is 66 years and 10 months, but you decide to start collecting benefits at age 62, you’ll receive about 70-75% of your full monthly benefit. But if you wait until age 70, your benefit will be higher due to delayed retirement credits—increasing by approximately 8% per year after your FRA.
For those born in 1960 or later, the full retirement age will gradually increase to 67 years.
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What Do These Changes Mean for You?
For current and future retirees, understanding these changes is crucial for financial planning. Here’s how you can prepare:
- If you’re still working: The increase in the taxable maximum means you might pay more into Social Security in 2024. This can lead to slightly higher future benefits, so consider how this might affect your retirement planning.
- If you’re close to retirement: Be mindful of your FRA. If you’re nearing your full retirement age, delaying your claim can boost your monthly benefit. However, if you need the income sooner, just know that claiming earlier will reduce your monthly check.
- If you’re already retired: These changes won’t directly affect you, but it’s good to stay informed, especially if you’re advising younger family members or making future financial decisions that rely on your benefits.
Frequently Asked Questions (FAQs)
1. How does the COLA affect my benefits?
The 3.2% COLA for 2024 will increase your monthly Social Security payments, helping to offset rising inflation. You’ll see this increase starting in your January 2024 payment.
2. What is the new taxable maximum for Social Security in 2024?
The maximum earnings subject to Social Security tax will increase to $168,600 in 2024.
3. What is the Full Retirement Age (FRA) for those born in 1959?
The FRA for those born in 1959 is 66 years and 10 months. Claiming before this age will reduce your benefits while delaying them past this age will increase them.
4. Should I wait until age 70 to claim Social Security benefits?
Waiting until age 70 to claim benefits can significantly increase your monthly payment due to delayed retirement credits. However, the decision to wait depends on your financial needs, health, and other factors.