3 major Social Security changes for 2024 that will surprise many Americans
Social Security lifted about 29 million Americans out of poverty in 2022, according to the latest data from the Census Bureau. This means it has had a greater impact than all other anti-poverty programs combined. But Social Security also plays an important role in helping Americans save for retirement. In fact, according to Gallup, the majority of retired workers rely on benefits to some degree.
Social Security is very important to many people, especially seniors, but people consistently scored low when tested on their knowledge of the program. This is concerning because even small knowledge gaps can lead to costly mistakes when planning for retirement.
Here are three Social Security changes that will take effect in 2024 that will surprise many Americans.
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Social Security payroll taxes will apply to more income in 2024
The Nationwide Retirement Institute reported that 74% of adults surveyed incorrectly labeled the following statements as fact: “Workers pay Social Security taxes on all their earnings.”
That statement is false. Only some income is subject to Social Security payroll taxes. The amount is capped based on the National Average Wage Index, an annual measure of U.S. wage trends calculated by the Social Security Administration. Average wage levels typically increase each year, which means the maximum taxable earnings limit also tends to increase each year.
For example, the maximum taxable income limit for 2024 is $168,600. This is an increase from $160,200 in 2023. This means that workers earning more than $168,600 will not pay Social Security taxes on any of their earnings this year. Some politicians see this as an opportunity to strengthen the program.
Cost-of-living adjustments to Social Security benefits will occur in 2024.
The Nationwide Retirement Institute found that 70% of adults surveyed incorrectly labeled the following statements as fact: “Social Security does not protect against inflation.”
That statement is false. The purchasing power of Social Security is protected against inflation through annual cost-of-living adjustments (COLAs). Currently, these COLAs are determined by how the Consumer Price Index for Urban Wage and White Collar Workers (CPI-W) changes in the third quarter of each year, but some politicians believe other methods would produce more accurate COLAs.
In any case, because CPI-W rose 3.2% in the third quarter of 2023, Social Security benefits in 2024 gained a 3.2% COLA. Regularly scheduled benefit increases are designed to help retired workers and other beneficiaries keep pace with rising prices.
Maximum Social Security benefits increased in 2024.
The Nationwide Retirement Institute reports that 44% of adults surveyed incorrectly labeled the following statements as false: “There is a cap on the Social Security benefits you can receive.”
That’s true. Social Security benefits are funded primarily through payroll taxes, and because there are limits to the amount of income subject to Social Security payroll taxes, the benefits the program can pay are also limited. Likewise, just as your maximum taxable income level increases with your wages from one year to the next, your maximum Social Security benefit also increases. For example, the maximum monthly benefit at full retirement age (FRA) is $3,822 in 2024. This is an increase from $3,627 in 2023.
However, claiming age is an important variable in determining salary. Retired workers who start Social Security after FRA receive the Delayed Retirement Credit, which increases benefits by two-thirds each month until age 70. As a result, the maximum Social Security benefit depends on your claiming age, but only for retired workers who file a claim. Once you turn 70, you can receive the largest possible benefit.
The table below shows the maximum monthly Social Security benefits for various claiming ages in 2024.
Age to apply in 2024 | Maximum Social Security Benefits |
|---|---|
62 | $2,710 |
65 | $3,426 |
66 | $3,652 |
at | $3,822 |
67 | $3,911 |
70 | $4,873 |
Data source: Social Security Administration. Some workers born in late 1957 will reach FRA this year at age 66 years, 6 months, and some workers born in early 1958 will reach FRA this year at age 66 years, 8 months.
The Social Security system will undergo similar changes next year.
For review, we discussed three changes to Social Security that would take effect in 2024: Earnings up to $168,600 are now subject to Social Security payroll taxes, up from $160,200 in 2023. Social Security benefits for retired workers and other beneficiaries catch up with rising prices. And maximum Social Security benefits were increased to account for the wage increase. Retired workers at FRA can receive up to $3,822 per month in 2024, up from $3,627 per month in 2023.
The same aspects of the Social Security program will change again in 2025. Official figures won’t be released until October 2024, but the Congressional Budget Office predicts the maximum taxable income limit will increase to $176,100 and Social Security benefits will increase by 2.5% next year.
