How Social Security Changes in 2024 May Affect Retirees
Social Security will boost benefit checks in 2024 by 3.2% beginning January 1, 2024. This represents over 50% lower adjustment than the previous year's cost-of-living adjustment (COLA). The 3.2% COLA ranks as the third largest increase in the past twelve years, and inflation had decreased to 3.2% by late October 2023. The COLA applies to veteran's disability benefits and retirement pay as well.
What Does This COLA Increase Mean for Retirees?
The average monthly Social Security benefit will increase by $59, though a $9.90 monthly increase in Part B Medicare premiums will offset some of this gain. At least 14% of beneficiaries rely entirely on Social Security for 90% or more of their income, with another 21% depending on it for 75% or more. Altogether, 75% of retirees receive at least 50% of their income from Social Security.
Higher Maximum Benefits
Higher earners who previously reached maximum benefit amounts will see increases. The maximum Social Security benefit for someone retiring at full retirement age will rise from $3,626 to $3,822 in 2024. This applies to those beginning benefits at full retirement age (67 or slightly older) for anyone born after 1960. Approximately 2% of retirees qualify for the maximum monthly benefit of $3,627, representing a monthly increase of $282.
Inflation and Your Social Security Benefits
Recent inflation combined with Medicare cost increases means most retirees should reconsider their budgets and adjust expectations. Those nearing retirement may need to postpone their exit from work. Retirees taking required minimum distributions (RMDs) from 401(k)s might consider limiting withdrawals to the minimum and reinvesting portions to combat future inflation.
Those with investments and savings should remain partially invested in stock markets. If current portfolios lean heavily toward fixed income, allocating some funds to equities represents a prudent strategy. Retirees cannot afford to avoid market exposure entirely, as equity positions provide the best defense against inflation. Some retirees may incorporate part-time work into their retirement strategy, while others may reduce spending or combine multiple solutions.
Current investment decisions significantly impact financial resources five, ten, or twenty years ahead. Minimizing spending when markets decline and inflation rises—though painful—typically pays dividends long-term for those with modest retirement incomes. Larger withdrawals now erode future resources substantially.
Lakehouse Family Wealth believes retirees should maintain a long-term perspective and remain invested in equities as appropriate. The firm works with each client to develop portfolios suited to their circumstances, typically including long-term investments designed to outpace inflation and minimize retirement headwinds.
How Do You Find Out the Amount of Your 2024 Social Security Check?
The Social Security Administration sends COLA notices during December to retirees and those receiving survivors, disability, and SSI payments. Alternatively, beneficiaries can log into My Social Security to view information online.
More of Employee Income Will Be Subject to Social Security Taxes
The maximum income subject to Social Security taxes increases to $168,600 in 2024, up from $160,200, reflecting increased average U.S. wages. Workers typically pay Social Security taxes at the 6.25% rate, meaning higher-income workers continue contributing more to the system.
What If You Work During Retirement?
Work earnings during retirement can limit Social Security benefits through the retirement earnings test. Beneficiaries forfeit $1 in benefits for every $2 earned above $22,320 in 2024 for those younger than full retirement age. During the year reaching full retirement age, the earnings limit increases to $59,520, with $1 withheld per $3 of excess earnings. No withholding occurs beginning the month you reach full retirement age.
Plan for What Does Not Change with Social Security
Estimates suggest Social Security will pay full benefits through approximately 2034. Assuming Congress doesn't address the shortfall by then, benefits could drop to approximately 75-80% of current levels starting in 2034. While Congress may find solutions, Social Security operates as a spend-as-you-go program with an uncertain future.
Lakehouse Family Wealth believes sound financial planning centered on family needs represents the foundation for retirement success. The firm helps clients achieve goals during working years and in retirement, developing and revisiting long-term plans while addressing common retirement challenges including inflation, investment risk, spousal death, longevity, and long-term care needs. They work with clients early in their careers and those near or already retired to develop and refine plans appropriate to individual situations. Contact them for a free assessment.
This article is for general informational purposes only and does not constitute personalized financial, tax, or legal advice. Benjamin A. Simerly, CFP®, founder of Lakehouse Family Wealth, offers advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Lakehouse Family Wealth is not affiliated with Cambridge.