Retirement

Social Security Benefits Will Rise 3.2% In 2024, While Top Tax Jumps 5.2%

Social Security benefits will increase 3.2% in 2024 for the nation’s 71 million recipients, raising the average monthly check for a single retired worker to $1,907, up $59 from $1,827 this year, and for a retired couple both receiving benefits to $3,033, up $94 from $2,939 this year, the Social Security Administration said today. That’s a small boost compared to the 8.7% cost-of-living adjustment (COLA) for 2023 (the largest since 1981, as shown in the chart below) and reflects the damper that’s been put on inflation.

By law, the 2024 COLA is based on the increase in the Consumer Price Index for Urban Wage Earners (CPI-W) between the third quarter of 2022 and the third quarter of 2023—meaning it looks backwards at inflation and was set this morning when the Bureau of Labor Statistics reported September’s inflation rate. Current beneficiaries should get notices in the mail in early December with their new individual 2024 benefits amounts, but can get that information sooner by setting up an individual online account and signing up for a text or email alert. Automatic Social Security COLAs have been in place since 1975, when Congress decided to take itself—and the political pressures of the day—out of an annual adjustment affecting so many voters.

The SSA also said today that the maximum amount of earnings subject to Social Security tax (also known as the wage base) will rise to $168,600, up 5.2% from the $160,200 base in 2022. That adjustment, which means higher taxes for about 6% of workers, is based on changes in the national average wage index, not the CPI. The Congressionally set Social Security tax rate itself is unchanged at 12.4%, with the worker and the employer each paying half and the self-employed paying the full 12.4% themselves. That means the maximum Social Security tax per worker will be rising by $1041.60 to $20,906.40, with $10,453.20 of that taken directly out of an employee’s paycheck, up from $9932.40 this year.

The maximum benefit for a high-income single worker claiming Social Security at “full” retirement age will be $3,822 a month in 2024, up from a maximum of $3,627 in 2023. But the actual maximum benefit goes up and down depending on the age at which a worker claims. For example, someone born in early 1958 will reach their full retirement age of 66 and 8 months in late 2024. But if they wait until 70 to claim, their monthly benefits will be 27% higher. This “delayed retirement credit” equals two thirds of 1% a month for each month of delay beyond the full retirement age, or 8% a year. There’s no advantage to waiting beyond 70. Those who wait past full retirement age to claim don’t lose the benefit of yearly COLAs; instead, the yearly COLA is used to adjust a recipient’s benefit at full retirement age (also known as their “primary insurance amount”) before it’s multiplied by the delayed retirement credit.

Another key set of automatic adjustments released today, this one based on the wage index, is the amount those who have claimed Social Security retirement benefits before their full retirement ages can earn from a job or self-employment without having their benefits docked. Workers can claim reduced retirement benefits at age 62, and about 30% of Americans do so. But the full retirement age is 66 for those born from 1943 to 1954 and rises by two months per year until it hits 67 for those born in 1960 or later, who take a 30% cut in monthly benefits if they claim when they turn 62.

In 2024, most of those receiving Social Security early will lose $1 in benefits for every $2 in earnings above $22,320, or $1,860 a month, up from $21,240 a year or $1,770 a month in 2023. Those who reach their full retirement age in 2024 have a more generous earnings limit. They will be able to earn up to $59,250 ($4,960) a month in the period before they reach full retirement age and will only lose $1 in benefits for each $3 earned above the limit. The earnings test has become more significant as the full retirement age rises and the percentage of older workers in the labor force, which fell sharply in the early days of Covid pandemic, continues to recover. (Note that the work penalty is not as bad as it sounds, since Social Security recalculates your benefits when you reach full retirement age to account for any amounts you lost before that date because you claimed early, but still worked.)

Amid that barrage of numbers, one crucial dollar adjustment affecting retirees’ finances still hasn’t been released by the federal government: the 2024 Medicare Part B premium, a number that the Centers for Medicare and Medicaid Services (CMS) should publish today or tomorrow, since the open enrollment period for 2024 Medicare coverage begins on October 15th. (During open enrollment, recipients can switch between traditional Medicare and Medicare Advantage, or switch their Medicare Advantage plans.)

In 2023, the premium for Part B fell for the first time in more than a decade, dropping from $170.10 to $164.90 for those retirees who aren’t subject to a high income surcharge, after spurting 14.5% in 2022. High income premiums kick in at a modified adjusted gross income of $97,000 or more for an individual, or $194,000 for a couple, and go up in steps, with the top premium levied at an income of $500,000 for a single or $750,000 for a couple. The top income adjustment boosted Part B premiums in 2023 to a stiff $560.50 per person a month, meaning a well-off retired couple could be paying $13,452 a year.

Part B premiums are expected to rise this year, in part because of the cost of a newly approved drug, Leqembi, which in a phase 3 trial was found to slow the progression of memory loss and cognitive impairment in patients with early-stage Alzheimer’s and which Medicare has decided to cover. (Both the 2022 premium increase and the 2023 cut were related in part to the FDA’s controversial 2021 approval of an earlier and also pricey Alzheimer’s drug, Aduhelm, which Medicare ended up covering only for the purpose of clinical trials.)

Leqembi, which is administered via infusion at hospitals, clinics and doctors’ offices, is covered by Part B, not by the Part D drug benefit, which covers medications taken at home. CMS said last month that Part D premiums are expected to remain stable in 2024, with the average premium dropping 1.8% to around $55.50. In addition, changes in drug coverage passed in the 2022 Inflation Reduction Act will lower out-of-pocket drug costs for some beneficiaries, by, for example, cutting the cost of insulin and eliminating the copay for those with “catastrophic” drug costs above $8,000.

Medicare Advantage plans, also known as Part C plans, cover both Part B and Part D drugs, and may charge an additional amount over the regular Part B premium, though not all of them do. CMS projected last month that the additional Medicare Advantage premium will average $18.50 in 2024, up from$17.86 in 2023.

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