Paul O. Dillon, Attorney at Law

Social Security Updates You’ll Want to Know

Navigating Social Security isn’t always easy, largely because things keep changing. Not being aware of the changes can put a dent in retirement finances, according to a recent article, “3 Social Security Changes Retirees Need to Know About in 2024,” from Nasdaq.com. Anyone receiving benefits in 2024 should be aware of these changes.

Monthly benefits are higher due to inflation. After a long period when inflation was seemingly gone, we’re now experiencing both inflation and shrinkflation (packages becoming smaller while prices increase). The Social Security Administration has a built-in tool to respond to inflation: the Cost of Living Adjustment, or COLA.

Every year, Social Security benefits are adjusted to account for inflation. The increase is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of inflation monitoring costs of necessities: food, housing, and transportation. The average of the CPI-W for July, August, and September are compared to the prior year’s average inflation to arrive at the rate. Estimates for 2025 aren’t released until October, but early estimates expect it to be 2.6%. In 2024, the COLA was 3.2%.

Adjustments in 2024 increased the amount you can earn if you take benefits early. Some of your benefits may be withheld if you take Social Security benefits before reaching Full Retirement Age (FRA). If you don’t reach FRA this year, the earnings limit is $22,320. Your monthly benefit will be reduced by $1.00 for every $2.00 earned over the limit. However, if you reach FRA this year, the earnings limit is $59,520, with benefits reduced by $1.00 for every $3.00 above the threshold.

Note that these benefits aren’t permanently lost. Once you hit FRA, the SSA recalculates your benefits and adds back the amount that had been withheld.

It’s become harder to reach Social Security’s maximum monthly benefit. The core formula is based on your top 35 earning years. To qualify for the maximum benefit, taxpayers need to do two things: delay benefits until they turn 70 and earn more than the wage base limit for the 35 years used in the calculations. In 2024, the wage-based limit will be $168,000, the highest income subject to Social Security taxes. After this much income has been earned, there are no Social Security taxes.

Wage base limits change often, so if you want to reach the maximum monthly benefit, keep track of these changes and your income.

Reference: Nasdaq.com (July 29, 2024) “3 Social Security Changes Retirees Need to Know About in 2024”

Tax Strategies May Have Impact on Medicare Costs

How much retirees pay for Medicare Part B premiums is based on income levels, and an income increase of even $1 can trigger higher tax rates, explains the recent article, “Year-end tax strategies may affect how much retirees pay for Medicare. Here’s what to know” from CNBC.

Social Security beneficiaries will receive a 3.2% increase in benefits in 2024 based on the annual COLA (Cost of Living Adjustment). According to the Social Security Administration, this will result in an estimated increase of more than $50 per month, bringing the average monthly retirement benefit for workers from $1,848 in 2023 to $1,907 in 2024.

How much beneficiaries will actually receive won’t be known until December, when annual benefit statements are sent out. One factor possibly offsetting those benefit increases is the size of Medicare Part B premiums, which are typically deducted directly from Social Security monthly benefits.

Medicare Part B covers physician services, outpatient hospital services, some home health care services, durable medical equipment and other services not covered by Medicare Part A.

Medicare Part B premiums for 2024 have not yet been announced. However, the Medicare trustees have projected the standard monthly premium possibly being $174.80 in 2024, up from $164.90 in 2023.

Some beneficiaries may pay more, based on income, in what’s known as IRMAA or Income Related Monthly Adjustment Amounts. In 2023, it is the standard Part B premium for those who file individually and have $97,000 or less (or $194,000 or less for couples) in modified adjusted gross income on their federal tax return in 2021.

Monthly premiums can go up to as much as $560.50 per month for individuals with incomes of $500,000 and up, for couples with $750,000 and up.

Beneficiaries receive the same Medicare services regardless of the monthly Part B premium rate.

In 2024, the monthly Part B premiums will be based on 2022 federal tax returns. Beneficiaries need to pay attention to how their incomes may change when implementing year-end tax strategies.

For instance, if you do a Roth conversion, taking pre-tax funds from a traditional IRA or eligible qualified retirement plan like a 401(k) and moving them to a post-tax retirement account, you’ll trigger income taxes, which may trigger higher Medicare Part B premiums later.

People who do end-of-year tax loss harvesting, selling off assets at a loss to offset capital gains owed on other profitable investments, may reduce adjusted gross income and future Medicare premiums.

If you’re taking distributions from IRAs and want to make charitable donations, you might want to make those donations directly from your retirement account, known as a qualified charitable distribution. These funds don’t appear on your tax return and won’t increase income taxes or future Medicare premiums.

Reference: CNBC (Oct. 12, 2023) “Year-end tax strategies may affect how much retirees pay for Medicare. Here’s what to know”

Social Security Cost of Living (COLA) Is Likely to Increase in 2024

Following two years when Social Security Cost of Living Adjustments (COLAs) soared to the highest levels in decades, beneficiaries should not be surprised by more modest increases in monthly payments in 2024, reports a recent article, “Social Security COLA 2024: How Much Will benefits Increase Next Year?” from AARP.

The inflation gauge used by the Social Security Administration (SSA) to set the annual COLA rose at a 2.6% annual rate for July and 3.4% for August. These are the first two of three months the SSA uses to determine the final increase, which will be announced more formally in October.

The August uptick was a bit higher than anticipated, and September’s inflation numbers are expected to rise to similar levels. Analysts expect a 2024 COLA of about 3 percent.

This may seem like a letdown for recipients. Still, COLA is calculated to exactly offset the price increases faced by consumers, measured by the Consumer Price Index, since the prior COLA was determined.

A 3 percent COLA indicates inflation is slowing down or getting under control, which is especially important for seniors living on a fixed income. While a higher COLA sounds nice, it reflects rising prices, which can be far more challenging for retirees who count on Social Security benefits to pay their household bills.

All forms of benefits are affected by the COLA, including retirement, disability, family, and survivor benefits. The adjustment starts with the December Social Security benefits, which most folks receive in January 2024.

Benefits are calculated by the CPI-W, a subset of the main Consumer Price Index, which measures a broad range of retail prices. The SSA compares the average CPI-W for July, August, and September of each year to the figure for the same period the year before to arrive at the COLA for the year to come.

For example, the year-over-year changes in the CPI-W for the three months in 2022 were 9.1%, 8.7%, and 8.5%, respectively. Over the entire quarter, the index was 8.7% higher than average for the same period in 2021, resulting in the COLA used at the start of 2023.

If projections hold, and there’s no reason to think they won’t, the 2024 adjustment will align more with the relatively low inflation pre-pandemic period. When there’s no inflation, there’s no COLA. This happened in 2010, 2011 and 2016. The most significant adjustment ever? 14.3 percent in 1980.

Studies by the Center for Retirement Research show Social Security benefits generally keep up with inflation in the long term but can lag during short-term periods of volatility, depending on whether or not the price index is trending up or down when the COLA is set.

Beneficiaries in 2021 and 2022 lost buying power when COLAs were outpaced by surging inflation, peaking around 9 percent in mid-2022. This year, inflation was cooling somewhat when the 8.7 increase took effect and remained below the COLA level.

Another factor impacting the COLA’s value is Medicare costs. A rise in Medicare Part B premiums in 2024 would offset a portion of the COLA increase for Social Security recipients who have premiums deducted directly from their benefits, which is about 70 percent of Medicare enrollees.

Reference: AARP (Sep. 13, 2023) “Social Security COLA 2024: How Much Will benefits Increase Next Year?”

What Is Social Security Increase in 2023?

Three big changes are coming to Social Security in 2023, and they may factor in your financial plan for the coming year. A recent article from The Motley Fool, “3 Changes to Social Security in 2023 You Probably Didn’t Know,” says checks are going to look a lot different in 2023.

Record inflation levels have made everything from gas to groceries more expensive and a serious challenge for seniors dependent upon Social Security. However, change is coming soon.

The Cost-of-Living Adjustment (COLA) for 2023 is going to be a whopping 8.7%. This adjustment happens every year, but this is one of the biggest increases in many years. In December, the Social Security Administration started sending notices to all beneficiaries listing their new monthly benefit. The new number can also be seen on the My Social Security website.

There’s also been a change to the amount you can earn and have to pay in Social Security payroll taxes. In 2022, only the first $147,000 was subject to Social Security payroll taxes. This will increase to $160,000 in 2023. If your goal is to achieve the maximum Social Security benefit upon retirement, you’ll need to both earn more and pay more taxes on at least this much.

This really only impacts high income earners. Most people who earn less than $147,000 are already paying Social Security taxes on their income. Only high-income earners will have to pay extra next year.

The third big change is to thresholds for the earnings test. The Social Security earnings test withholds money from Social Security benefits if the taxpayer is receiving benefits and earns too much before they’ve reached their full retirement age (FRA). Depending on the year of birth, this could include people between 66-67.

In 2023, you lose $1 from each check for every $2 earned over $19,560 if you’re under your FRA for the entire year. You also lose $1 for every $3 you earn over $51,960 in the year you reach FRA if you earn this much before your birthday.

These thresholds will increase in 2023, from $19,560 to $21,240 and from $51,960 to $56,520.

The money lost to the earnings test doesn’t evaporate. When the taxpayer reaches their FRA, benefits are recalculated, and future checks are larger to make up for any lost amounts.

Your buying power won’t change that much. However, the increases are hoped to relieve some of the financial pain of inflation. Budgets will still be tight for those who don’t have other sources of income. A part-time job might be needed to provide additional income. If they exist, retirement accounts will need to be tapped.

Reference: The Motley Fool (Dec. 3, 2022) “3 Changes to Social Security in 2023 You Probably Didn’t Know”’

What Is the Social Security Increase for 2022?

The Social Security Administration has announced a record-high COLA (Cost of Living Adjustment) for 2022, and recipients are eager to calculate just what this means for their monthly Social Security benefit. How to estimate the increase is the focus of the article “Social Security cost-of-living adjustment will give average retirees $92 more a month in 2022. How to estimate how much you’ll get” from CNBC.

The COLA for 2022 for Social Security or Supplemental Security Income (SSI) will be 5.9%. More than 64 million Americans will see their benefits increase in January, as will about 8 million recipients of SSI benefits.

The annual adjustment is based on inflation. While this is the highest increase since 1982, consumer prices have gone up as well, so the extra may not go very far. Experts say the average increase will be about $92—from $1,565 in 2021 to $1,657 in 2022. However, every beneficiary will see a different size of increase, mainly due to Medicare Part B premiums.

Payments for Medicare Part B are usually deducted directly from monthly benefits. Not everyone has Medicare Part B coverage, especially if they are still covered under an employer health plan or if they haven’t yet reached Medicare eligibility, age 65 for many.

The standard Medicare Part B premium is projected to be up by ten dollars from $148.50 to $158.60 per month, but rates have not been officially announced.

For those who are not covered by Medicare Part B, multiply the monthly benefit by 1.059 to approximate benefits for next year.

If you are covered by Medicare Part B, subtract $10 from the same calculation to get close to what your monthly payment for 2022 might be.

But—there’s always a “but”—people with incomes above certain levels will pay more for Medicare Part B. This is because of the Income-Related Monthly Adjustment Amount, or IRMAA. A new table for Medicare Part B premiums for 2022 has not yet been released.

Social Security and SSI beneficiaries will be notified by mail in December, and the information will also be available on the My Social Security website.

New benefits for 2022 won’t be calculated for those covered by Medicare until after premiums for next year are announced. Those changes will be available, once they’ve been completed at Medicare.gov.

Reference: CNBC (Oct. 22, 2021) “Social Security cost-of-living adjustment will give average retirees $92 more a month in 2022. How to estimate how much you’ll get”