Every year, the Social Security Administration (SSA) implements changes to enhance the program’s conditions for beneficiaries across the country. However, concerns about the future of Social Security have recently gained momentum. According to the latest Trustees Report, the Social Security retirement trust fund is projected to be depleted by 2033 unless Congress intervenes. This looming issue suggests that significant changes to the program may be on the horizon.
The 3 Big Changes Impacting Retiree Paychecks
Early Retirement Claimants Can Earn More Without Affecting Their Monthly Benefit
For retirees who claim Social Security benefits before reaching full retirement age and continue to work, the SSA has increased the earnings limit for 2024. Under the retirement earnings test, beneficiaries under full retirement age can now earn more before their benefits are reduced. Specifically, for every $2 earned over the earnings limit, the SSA will withhold $1 from benefits. Once full retirement age is reached, the threshold increases, and the SSA will withhold only $1 for every $3 earned over the limit. Importantly, the withheld amounts are not lost; instead, they are recalculated into future benefits, effectively treating them as if you had delayed your Social Security claim by one month for each month’s worth of benefits withheld. Once full retirement age is reached, the earnings test no longer applies, and the withheld amount is added back to your monthly payments.
Maximum Monthly Benefit Increased by 3.2% in 2024
In 2024, the maximum Social Security monthly benefit increased to $4,873, up from $4,555 in 2023. To qualify for this maximum payment, you must be 70 years old and have at least 35 years of earnings at or above the maximum taxable earnings level. This increase is primarily driven by the annual cost-of-living adjustment (COLA), which was 3.2% in 2024. The COLA is determined based on the average quarterly increase in inflation during the third quarter of the previous year.
Another factor influencing the maximum benefit is how the SSA calculates your monthly payment using your highest 35 years of earnings. The SSA adjusts these earnings for inflation using the Average Wage Index (AWI), which tracks annual wage growth. Since the AWI reflects wage growth more accurately for younger retirees who often earn more than the taxable maximum, the average monthly earnings—and thus the maximum benefit—are higher for this year’s 70-year-old group compared to last year’s group.
Social Security Taxes Increased by 5.3% in 2024
In 2024, the amount of income subject to Social Security taxes increased by 5.3%, raising the taxable wage base from $160,200 in 2023 to $168,600. While this change directly affects only those earning above the previous cap, its implications are broad. As the SSA begins to draw more heavily on the trust fund, the taxes collected play a crucial role in maintaining Social Security benefits.
Although only 6% of workers are expected to exceed the new wage cap, the taxable wage base is linked to the Average Wage Index, which grows with wage increases. As long as wage growth outpaces inflation, the SSA will generate more tax revenue to support the program. This is critical for Social Security’s sustainability, even though a significant overhaul may be needed to ensure the system’s long-term viability.
FAQs:
What happens if I exceed the earnings limit before reaching full retirement age?
If your earnings exceed the limit, the SSA will withhold $1 in benefits for every $2 you earn above the threshold. However, this amount is not lost—it is added back to your monthly benefits once you reach full retirement age.
How is the maximum Social Security benefit determined?
The maximum benefit is based on your earnings over your highest 35 years of work, adjusted for inflation. To receive the maximum benefit, you must have reached 70 years of age and have consistently earned at or above the maximum taxable earnings level.
Will Social Security taxes continue to increase?
The taxable wage base for Social Security taxes typically increases annually to keep pace with wage growth. This ensures the program continues to collect sufficient revenue to fund benefits.