What’s New with Social Security in 2024?

Whether you're nearing retirement, already retired, or just planning ahead, it's crucial to stay informed about Social Security and any changes that happen each year. Today we’re going to share some key things that you need to know and bring you up to speed on some updates that need to be aware of. Ryan will also tell you how this might impact you and the planning you’ll do this year.

We spent a little time on 2024 changes in our last episode but we’re dig a bit deeper in this show. We’ll give you the latest on benefits, taxes, earnings, and much more. Plus, we’ll get into Medicare as well and fill you in on the changes in premiums.

This episode will also provide some practical advice and discuss strategies for maximizing your benefits under the new rules. Don't miss this opportunity to get ahead of the curve in understanding the 2024 Social Security changes.

Here’s some of what we discuss in this episode:

• The Cost of Living Adjustment you can expect this year.
• The payroll tax limit has bumped up so what does this mean for you.
• Medicare premiums will be up from most people.
• What is the future of Social Security and its solvency?
• Does anything change with claiming strategies with the changes and updates we have?

Full Transcript:

Ben (00:01):

Coming up on this episode of Candid Conversations Retirement Talk with Ryan Cravitz. We are taking a good look at Social Security, what's new with Social Security in 2024. We're going to share some key things that you need to know, some updates that you need to be aware of, and then Ryan will share his thoughts on what this means from a planning perspective. That's all coming up.

Announcer (00:23):

When it comes to financial planning you need to cut through the jargon so that you can understand how to achieve your own retirement success. This is Candid Conversations Retirement Talk with Ryan Cravitz of Cravitz Financial & Insurance Solutions.

Ben (00:37):

Well, glad to have you on Candy Conversations Retirement Talk with Ryan Cravitz. I'm Ben George, he of course is Ryan Cravitz. Hey, Cravitz Financial in Orange, California. Ryan, what's going on today?

Ryan (00:47):

Well, I'm cold, Ben, come on. Well, yeah, it's under 60 degrees over here.

Ben (00:53):

I know part of the country's getting hammered by snow and I think there's a football game, playoff game potentially. Could be the coldest ever played in Kansas City. But you guys are in the fifties, huh?

Ryan (01:04):

Yeah, I'll have to watch that game on tv, I think. Yes. Yeah, I think it was, well actually it dropped a little overnight, but during the day here, it's been like in the fifties and maybe gets into the sixties the last few days, which is I know nothing compared to a lot of parts of the country, but I don't do well in cold. I never have.

Ben (01:24):

That's why you live in Southern California, right? To avoid that.

Ryan (01:27):

Yeah, absolutely true. Yeah.

Ben (01:30):

Well, we got a great show for you today, an important show. I know our last episode, we talked about a number of things that were new and some updates from a retirement planning perspective for 2024. We wanted to go a little deeper this episode and really get into Social Security and some Medicare as well to make sure you're just kind of up to date on what's new with Social Security this year, what do you need, be aware of what changes might impact you for the next year. And then of course, Ryan will share some of his thoughts on everything and what it could mean for you. So if you have questions again as we go through this and want to follow up and really sit down and go through Social Security with Ryan, the best place to start is CravitzFinancial.com or you can call 714 462-9155. And Ryan, this is a great subject, right, because Social Security is so important for just about everyone heading into retirement and you really want to stay on top of it.

Ryan (02:19):

Absolutely. It's so important to know how this works with Social Security as we'll talk about here it's a tax advantage income stream that'll continue on for the rest of your life. So you want to make sure you understand how it works, how to get the most and benefits that you can from it. And we'll touch on a number of important things here today.

Ben (02:37):

Yeah, we have seven key updates to share with you. Let's start with cost of Living adjustment. The 2024 COLA, I know it was much higher last year coming off high inflation. They usually keep up with that. It was over 8% I think. So what are we looking at this year for 2024?

Ryan (02:54):

Yeah, you're right. It was over 8% last year and this year it's gone up at 3.2%, so not nearly as high, but hey, we'll take it. Absolutely. Here's the thing. In October of every year, the Social Security Administration announces a bunch of numbers and it's determined by the rate of inflation over the last 12 months. And the most eagerly awaited number is that cost of living adjustment or the amount by which Social Security checks will then be raised. Another number is the new earnings test threshold, and we'll get to that one. And then finally, the maximum amount of earnings on which Social Security taxes are assessed. Now again, the cost of living adjustment this year for 2024 is 3.2%. So this means if your current benefit is $800, you're getting an extra $26 per month. And the higher your benefit is the higher your COLA is.

(03:51):

And I talk about this quite often, that let's say that you decide to delay taking your benefit past age 62 maybe to your full retirement age, which could be 66 or 67 or somewhere in between there, depending on the year you were born or maybe till age 70, that if you delay taking that benefit and then when you get those costs to living adjustments, that when you get that, let's say 3.2%, that percentage is going to be the same for everybody. But if you delayed and now you have that higher benefit, you're getting 3.2% on that higher amount. So that could be one reason, as I always talk about, to delay taking your benefits. Now historically, the 3.2% doesn't seem that good compared to the 8.7% the year before. But remember that just these last couple of years we really experienced much higher inflation. That 8.7% was an anomaly. Since 1989 the COLA has averaged about 2.6% a year and kind of going forward, the Social Security trustee projecting a 2.4% COLA. So we will see what plays out here, but typically, I'll tell you when I'm doing planning, we're looking at about a two, maybe two and a half percent COLA projection on Social Security.

Ben (05:17):

Yeah, that's really interesting because I guess we're getting used to having that higher bump and it's nice, but it's easy to forget that there wasn't that much of a bump even for a lot of the 2010's and into 2020. We didn't see a lot of that bump. So kind of curious to keep that perspective on where we are. So 3.2 still a nice bump compared to most years.

Ryan (05:38):

Yeah, there were some years there, like you said in the 2000 and teens where there were some 0% years and a lot of times people started thinking, well, maybe we're not going to be getting cost of living adjustments from Social Security because the thought is that it's underfunded, which it is, but really what it had to do with is we weren't experiencing inflation. We have been in the last couple of years.

Ben (06:02):

Yeah, so true. So some good perspective on what to expect by 3.2% is the cost of living adjustment for 2024. Alright, let's go to the earnings test now. So kind of a quick explanation I guess of what that is, Ron. And then I guess what has changed for this year?

Ryan (06:17):

So first off, the earnings test has to do with if you're planning to work and you haven't yet reached your full retirement age and you want to turn on your Social Security benefits, then either all or some of your benefits will get withheld. So in 2024 what's changed is those threshold numbers. So they've increased a little bit. So this is one of the nice increases that we've gotten because of inflation. And now this year, let's say you're 62 and you want to still continue to work, you can make up to $22,320, which is up from $21,240 last year. So it went up a pretty good percentage there. So you can make up to $22,320 and they will not withhold any of your benefits, but if you make more than that, they'll withhold a dollar for every $2 above that limit and in the year of your full retirement age, but before the actual month of your birthday, they will still withhold perhaps, but the rules are a lot more lenient.

(07:25):

So you can make up to $59,520 and they'll only withhold a dollar for every $3 above that limit. Now, it's important to know that once you actually reach your full retirement age, if you had any benefits withheld, they will adjust your benefit going forward that you're receiving with a positive adjustment. But here's the thing, and I say this so often is that if you're still planning to work for a lot of people, it's probably not going to make sense to take Social Security prior to your full retirement age. Are there exceptions? Absolutely. And it depends on what your income is and your other sources of income other than from working as well. That'll just kind of come into play within your overall plan. But for most people, it doesn't make sense to take your Social Security prior to full retirement age if you're still planning to work, especially if you're not needing that money for income.

Ben (08:30):

Yeah, that makes a lot of sense. And I don't know, are most people that you talk with Ryan aware of these thresholds? I mean, because this is a pretty low number, especially if you're someone that it doesn't take a whole lot with where kind of rates are now and even where pay is in a lot of places, it doesn't take a lot to get to that $22,000 threshold.

Ryan (08:47):

It doesn't, and that's why I say for most people it's probably not going to make much sense to do that. I mean, certainly if you're in a situation where you're making under let's say $22,320 and 2024 and you need that additional income from Social Security, that's going to make sense. But if you're making a hundred thousand dollars a year, then all your benefits would be withheld anyway, so it wouldn't make any sense in that case.

Ben (09:14):

Okay. Talking about what's new in 2024 with Social Security, of course, if you have questions, please follow up at 714-462-9155 or log on CravitzFinancial.com. Now, when we talk Social Security, of course it's important to point out taxes, Ryan. So what are taxes looking like? What's changed here for the new year?

Ryan (09:35):

On the one hand, it's nice when we have inflation because we have the cost of living adjustments, we have the changes with the earnings test, those benefit or the limit gets adjusted upwards. What's not nice is, for example, the payroll tax limit. So last year it was $160,200. This year it's $168,600. So the way this works is that let's say that you make $200,000 in income, you would have to pay taxes, Social Security taxes on up to $168,600 of income this year, whereas the year before it was $160,200. So that's more that you're having to pay tax on, and the amount that you're paying is 6.2% for Social Security, and if you're self-employed, you're paying both ends of that. So you're paying 12.4% in that case. Now the Medicare tax didn't change. The employee's portion is 1.45% on all earnings and if self-employed again you're paying both ends of that, so it's 2.9%. So those amounts, the 6.2% and the 1.45% for Medicare, those haven't changed. It's just that you have to pay taxes on a higher amount now this year. Now if you're making less than those limits, then it's not going to affect you, but certainly if you're making at those limits or above it will, you're paying a little bit more for Social Security and Medicare.

Ben (11:12):

Alright, so good to know about taxes of course, always important to factor that into your planning as well. What about the taxation of your Social Security benefits, Ryan?

Ryan (11:22):

Yeah, so here's an interesting one because a lot of the thresholds get adjusted upwards when there's inflation, but one that did not get adjusted upwards and hasn't gotten adjusted really since the eighties. That's when they put in these initial benefit thresholds for the taxation of Social Security. And in the 80's they made it so that up to 50% of your Social Security benefits could be taxable. And in the 90's they made it so that up to 85% of your Social Security benefits could be taxable. And the reason that this is not a good thing that this is not getting adjusted is that more and more people are having to pay taxes on their Social Security just because of with normal inflation and cost of living, people's incomes are higher. And so if you're needing to withdraw more money from let's say your IRA or your 401(k) in retirement and you have Social Security, well now when you do the calculation for Social Security and there's a whole provisional income formula which helps determine how much of your Social Security is subject to tax, well now more people, again are having to pay taxes on their Social Security.

(12:44):

And this is why it can be so wise to do some real careful strategic planning and think about when you're going to withdraw money from which income sources in retirement. I talk a lot about having tax-free income available to you such as from a Roth IRA, because if you can blend your withdrawals in retirement between taking some money perhaps from an IRA, some from a Roth IRA, and then taking Social Security, you may be able to strategically stay within certain tax brackets to minimize the taxes you have to pay in retirement, which could potentially increase the amount that you get to live on.

Ben (13:28):

It's interesting, as you go through this, it's a reminder that Social Security is not just a, Hey, let's turn it on and start collecting our benefits, right? There's a lot of planning that goes into it and you want to have those conversations before you make any decisions and just a good example of that.

Ryan (13:41):

Absolutely. Really do.

Ben (13:43):

Alright, Ryan, let's talk Medicare a little bit. Premiums, I know all eyes on what premiums will do. So what should people expect this year?

Ryan (13:52):

Yeah, so for Medicare part B, the new monthly premium is $174.70 for most people. So this is up from a $164.90 last year. And the reason that I say for most people is that if your income is above certain thresholds, then you'll have to pay an additional amount. This is the IRMAA surcharge this year. If you're single and your Maggie's above $103,000, you'll have to pay more for that IIRMAA surcharge. And if you're married, if your income is above, if your MAGI is above $206,000, then you'll have to pay more as well.

Ben (14:30):

All right. So good to know Ryan about the Medicare premiums. Let's look ahead at Social Security. I know a lot of the conversation in recent years and rightfully so, it's been about, Hey, what's the future of Social Security look like? Will there be money still left around when it's my time to claim my benefits? Update us on where we stand in terms of just how strong and steady this is?

Ryan (14:54):

Look, there's no doubt Social Security is definitely underfunded, but let's look at the facts. So at the end of 2022, there was about $2.8 trillion in the trust fund. Now in 2023, you look at the income and expenditures, about 22 billion more was spent than was brought in. So the trust fund started to deplete a little bit, and what's happening is the trust fund is being depleted and the latest projections, and each year they release the Social Security trustees report. And the most recent report, what it's showing is that in 2034, they're only going to be able to pay 80 cents on the dollar. So in other words, they're saying that in 2034, the trust fund's going to be depleted and they'll only be able to pay out 80 cents on the dollar at that time. So you look at that and that's a 20% reduction. Now, I highly doubt it's very unlikely that from one year to the next that they would just cut benefits by 20% all at one time, much more than likely what's going to finally end up happening.

(16:10):

And they keep kicking the can down the curb on this. And when I say they, I'm talking about our friends in Congress, it doesn't matter if we're talking Democrat, Republican, it's both sides. It's hugely unpopular to have to make changes to these types of programs. No politician wants to get on the nightly news and be the one that they're the ones want to make these changes, but ultimately something's going to have to happen. And what they end up doing is really anybody's guess, a couple of the more popular proposals that are out there recently are that they could increase the payroll tax limit even more. And we talked about what that increase is for this year, but they could increase that even more so even beyond what we would expect for normal inflation. Another one that I think that is very likely to happen is that they will raise the full retirement age.

(17:08):

I highly doubt they'll do that for anybody that is close to receiving Social Security. But certainly for younger folks I believe that. And the reason I do is because they've already done it in the past. So we've already seen that raising it from 66 now up to 67 for instance, for those folks that are born in 1960 or later. So again, who knows what they'll end up doing, but it's a hugely popular program and eventually here, I highly believe our friends there in Congress will get together and do something to shore up the system long term.

Ben (17:45):

Yeah, I know, I know we're both similar ages, Ryan, so hopefully they do get it shored up for our sakes when it comes time for us to claim that. But I know a lot of people have concerns about it and definitely something to watch and I know that you'll keep people updated on that as it happens. So do you think they'll address anything this year?

Ryan (18:02):

I don't. One thing to just watch out for is the Social Security 2100 Act, which was introduced by John Larson. He's a Democrat out of Connecticut. It could come to a vote this year and if it does, it would restore full solvency solvency without affecting benefits for current retirees. But we will just have to kind of wait and see and see what happens here.

Ben (18:34):

Hope for the best. Right? That's the plan of attack. So again, if you have questions as we go through this 714-462-9155, claiming strategies. I know kind of a good thing to address as we kind of come to a conclusion here, but as people approach Social Security Age and whether you're in that age right now and you have the option to claim wherever you stand, Ryan, what are some updates on strategies heading into this year?

Ryan (18:59):

Yeah, so one thing I should mention here, because this is still being talked about, I know some people have still heard about a strategy that was called the file and Suspend, and to kind of refresh on what that is or was, I mean that's the one where a high earning spouse goes ahead and files for their benefits and then they immediately suspend them. And because he's now, let's just say it's he the husband, because he's now opened his record, the lower earning spouse, let's say the wife at that point can go ahead and claim a spousal benefit. Now what happened back in 2015 is that the Budget Act was passed and this allowed certain spousal claiming strategies and this file and suspend was one of 'em. Now, the last day to file and suspend was April 29th, 2016, and unless you had placed your suspension before April 29th, 2016, your spouse will not be able to claim a spousal benefit this way. So for those of you who did not suspend before the deadline, and honestly that's the only reason I even bring this up anymore is that it is mostly a question of making sure your spouse takes their spousal benefit at the optimal time if they haven't already. Other than that, it's basically a question of just sitting back and waiting because your benefit will automatically resume at age 70.

Ben (20:32):

Alright, very good to know on that front. What else? Anything else you want to add to that?

Ryan (20:36):

Well, the other strategy claim now claim more later, it was good while it lasted. It used to be possible to claim a spousal benefit while your own benefit was building delayed credits to age 70, but Congress abolished his strategy back in November of 2015, but people born before 1954 were grandfathered. Now all those people have now turned 70 and are taking their own benefits. So there's no one left to implement the claim now, claim more later strategy. We only mention it now because people are still talking about it, but the rule now is that you cannot take a spousal benefit if your own benefit is higher.

Ben (21:22):

Alright, very good to know on that front. Again, a lot of conversations to be had with a financial advisor to make sure you're going through that and having these talks and discussions to figure out what's the best claiming strategy for you. Ryan, any other final thoughts to wrap up this conversation? I know there's not a ton of huge news, but still a lot of smaller takeaways and updates and things to be aware of for this year, which I know you'll discuss with clients.

Ryan (21:48):

Yeah, I guess one other thing to mention is although some of the spousal loopholes have closed, it's still possible for a lower earning spouse to receive 50% of the higher earning spouse's PIA. That's the primary insurance amount if the lower earning spouse's own benefit is lower. Now, it's important to note that if the lower earning spouse is claiming the spousal benefit before the full retirement age, that the spousal benefit will be less than 50%. Also, the other spouse must be taking their own benefit and if the higher earning spouse's benefit includes delayed credits, because let's say he claimed after full retirement age, while the spousal benefit will not include those delayed credits.

Ben (22:40):

Okay, good to know on that front as well. So a lot of things to be aware of with Social Security, it's such an important benefit for retirees and you want to make sure you're getting the most out of it since you've been paying into it for your working career. You want to make sure you're as efficient as possible and get the most out of your benefits as well. Anything else, Ryan to close out with before we wrap up today's episode?

Ryan (23:04):

That's pretty much everything, I think.

Ben (23:06):