Major Changes to Social Security in 2024 – Here’s Everything You Need to Know

Social Security may not be the most exciting topic, but it plays a critical role in retirement planning for millions of Americans. For many older adults, Social Security is a lifeline, making up a substantial portion of their income. In fact, it provides over 90% of the income for about 12% of men and 15% of women aged 65 and older. For others, 42% of women and 37% of men, Social Security represents at least half of their income.

With such reliance on this program, staying informed about annual updates is essential. Let’s look into the five major changes coming to Social Security in 2024 and what to anticipate in 2025.

COLA

The annual Cost of Living Adjustment (COLA) ensures that Social Security benefits keep up with inflation. This adjustment is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Here’s a historical overview of recent COLA increases:

Year	COLA Increase
2015	1.70%
2016	0%
2017	0.30%
2018	2%
2019	2.80%
2020	1.60%
2021	1.30%
2022	5.90%
2023	8.70%
2024	3.20%

For 2025, the Senior Citizens League predicts a COLA of around 2.5%, but this will be finalized by the Social Security Administration (SSA) on October 10, 2024. Although 2.5% may seem modest, it translates into a monthly increase of $50 on a $2,000 benefit or $600 more annually.

Impact

To maximize the effect of COLA adjustments, consider waiting until age 70 to start taking Social Security. Delaying your claim increases your Primary Insurance Amount (PIA), making each future COLA boost more valuable. For example, a 3% COLA on a $2,500 benefit adds $75, while the same increase on a $2,000 benefit only adds $60.

Earnings Limit

The earnings-test limit is a crucial number for those who take benefits before reaching full retirement age (FRA) and continue working. If you earn more than the set limit, the SSA will reduce your benefits temporarily. For 2024, the limits are:

• $22,320: For those under full retirement age.
• $59,520: For those reaching full retirement age in 2024.

If you earn above these amounts, your benefits will be reduced by $1 for every $2 over the lower limit, and $1 for every $3 over the higher limit. Don’t worry too much; when you reach full retirement age, your benefit amount will be recalculated to include the previously withheld amounts.

The earnings limit is expected to increase slightly in 2025, providing more room for part-time earners to supplement their Social Security income.

Wage Base

There’s a cap on the amount of annual income subject to Social Security taxes. This wage base limit is set at $168,600 in 2024. Once your earnings exceed this amount, no additional Social Security taxes are deducted from your paycheck. The cap increases annually to keep pace with inflation and will be adjusted again for 2025.

Controversy

The earnings cap is often criticized for being unfair, as it limits contributions from higher earners. Removing or raising the cap is frequently proposed as a way to strengthen Social Security’s financial outlook, but so far, no legislative changes have been made.

Increase

Each year, the SSA adjusts the maximum possible monthly benefit to reflect changes in wage growth and inflation. In 2024, the maximum monthly benefit at full retirement age is set at $3,822. This amount will increase again in 2025, making it possible for high earners to receive a slightly larger monthly check.

Strategies

To get the highest possible benefit, work for at least 35 years at or above the annual wage base limit and delay your claim until age 70. While difficult, this strategy ensures you receive the maximum payout when you retire.

Benefits

The number of states taxing Social Security benefits has been steadily declining. In 2017, 37 states did not tax benefits. Today, 41 states and the District of Columbia exclude Social Security from taxable income. Kansas, Missouri, and Nevada are recent additions to the list. It’s likely that within a few years, even more states will eliminate this tax, providing more tax relief to retirees.

Tax Benefits

Currently, only a handful of states, like Minnesota and Vermont, impose taxes on Social Security income. As state governments adjust their tax policies to attract retirees, this number is expected to shrink further.

Changes

These upcoming changes underscore the importance of keeping track of Social Security updates each year. With shifts in the COLA percentage, wage base limits, and state tax policies, retirees need to stay informed to optimize their benefits.

FAQs