Social Security Changes That Impacted You in 2023 (and What’s Coming in 2024)

NEWS & TRENDING - RETIREMENT NEWS
Here's what changed with your Social Security benefits in 2023 and how each impacted you.
Updated June 6, 2024
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2023 brought a slew of changes to Social Security, as seniors were affected by rising inflation and an overall increase in the cost of living. Beyond the familiar headlines of the cost-of-living adjustment (COLA), many shifts have occurred, influencing the lives of tens of millions of Americans who rely mainly on their monthly Social Security check as their primary source of income. As we embark on this end-of-year review, we'll look at some of these changes and peer into what 2024 has in store for Social Security.

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1. The COLA benefit boost

Inflation, which particularly affects seniors living on a fixed income who want to avoid wasting money, cooled considerably in 2023. Yet, consumer prices witnessed an upward trajectory, resulting in a 3.2% COLA for Social Security beneficiaries. While this adjustment is notably lower than the red-hot 8.7% COLA recorded in 2023, fueled by the inflation surge of the preceding year, it remains higher than the historical average. 

The estimated average retirement benefit is set to increase by $59 a month, marking a transition from $1,848 to $1,907 starting in January 2024. This adjustment is a crucial lifeline for retirees, offering a buffer against the relentless march of rising prices.

2023 saw one of the highest COLA increases in history, with 8.7%. Although high, the COLA adjustment was not enough at the time to cover a true cost of living increase influenced by inflation that had reached double digits. This financial mismatch is expected to affect seniors this year as inflation has considerably cooled, but prices in major categories like groceries are still high.

The COLA's impact extends beyond retirees, encompassing all types of Social Security and Supplemental Security Income (SSI) recipients. This annual recalibration reflects the ebb and flow of economic tides, ensuring that these crucial benefits keep pace with the evolving cost of living. These increases are an effort to help your paycheck stretch a bit farther

2. Medicare premium offset

The interplay between COLA and healthcare costs is always a push-and-pull for those enrolled in Medicare. In 2024, the standard monthly Part B rate rises from $164.90 to $174.70, undercutting the COLA gain by approximately $10 monthly. This would mean if you are a Medicare recipient, the supposed $59 increase in benefits per month would be $49 after healthcare premiums.

3. Social Security tax thresholds

The backbone of Social Security funding rests on a 12.4% tax on most workers' incomes. While the rate has remained unchanged since 1990, the income threshold subject to this tax undergoes annual adjustments depending on national wage trends. In 2024, the threshold increases to $168,600, up from $160,200 in 2023. 

Wages steadily increased in 2023. Thus, the threshold increased as well. This means regardless of how much you make, the maximum income Social Security will tax you on is the first $168,600. Should you earn more than that, you are taxed at the federal and state level for regular income taxes. Still, you have already fulfilled the maximum contribution to the Social Security system.

4. Social Security earnings test

The Social Security earnings test is crucial for those navigating the balance between work and retirement. You can begin claiming Social Security benefits and still work, but certain rules exist. There are limits to how much you can earn while working and still receive benefits. If you are younger than 67 (full retirement age) and earn more than the yearly earning limit, the Social Security Administration may reduce your monthly benefit amount. 

The SSA will deduct $1 from your benefit payments for every $2 you earn above the limit. In 2023, that limit was $21,240. That means if you were receiving Social Security benefits and working, your benefit would have been reduced in 2023 if you earned more than $21,240.

In the year you turn 67, the SSA will deduct $1 in benefits for every $3 you earn above a different limit. In 2023, this limit was $56,520. The SSA only counts your earnings until the month before you turn 67, not the earnings for the entire year you turn 67.

In 2024, beneficiaries face adjustments to the threshold, aligning with national wage trends. For those not yet 67, $1 is withheld from their Social Security payment for every $2 in work income above $22,320, an increase from $21,240 in 2023. For those reaching full retirement age in 2024, Social Security withholds $1 in benefits for every $3 in earnings above $59,520, up from $56,520 in 2023.

5. Accumulating Social Security credits

The bedrock of Social Security eligibility lies in accumulating credits through covered work. In 2024, you earn one credit for every $1,730 in earnings, a $90 increase from the 2023 level. With a cap of four credits a year, equivalent to $6,920 in work income, you inch closer to the 40 credits needed for retirement benefits eligibility. 

Qualifying for Social Security Disability Insurance (SSDI) involves different rules, with the income threshold for most beneficiaries rising to $1,550 a month in 2024. For those receiving SSDI based on blindness, the higher income limit reaches $2,590 a month.

Looking ahead to 2024

The benefits horizon holds the promise of further shifts in Social Security. The COLA, a perennial headline-grabber, will continue its resistance to inflation. Healthcare costs, unavoidably linked to social security, will play a pivotal role as beneficiaries navigate the nuances of premium offsets. Understanding how these changes impact you ahead of time can help you properly prepare for retirement


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Author Details

Georgina Tzanetos Georgina Tzanetos is a former financial advisor who has been active in financial media for the past six years. She holds a master's in political economy from NYU, where she studied distressed labor markets.