Factors affecting retirement income are changing in 2024. Retirees relying on Social Security benefits will experience a boost to adjust for inflation.
However, the actual increase in income depends on factors such as Medicare Part B premiums and taxes withheld from their checks. These alterations highlight the dynamic nature of retirement finances this year.
While considering factors affecting retirement income, it’s essential to acknowledge four key elements that are shaping Social Security benefits in the new year.
These factors play a pivotal role in determining the amount you receive, emphasizing their significance in understanding your financial situation.
1. Benefits of Cost of Living Adjustment
Among the factors affecting retirement income, a notable boost is expected starting in January. Social Security benefits are set to increase by 3.2%, attributed to the annual cost-of-living adjustment.
This translates to an average rise of over $50 per month in retirement benefits, as outlined by the Social Security Administration.
In contrast to the substantial 8.7% cost-of-living adjustment (COLA) in 2023, the increase for 2024 is notably lower.
The previous adjustment resulted in an average boost of over $140 per month, as reported by the Social Security Administration.
Despite this, the maximum benefit for a retired worker claiming at full retirement age will see an increase to $3,822 per month in 2024, compared to $3,627 per month in 2023.
According to the Social Security Administration, the average benefit for all retired workers is set to increase to $1,907 in 2024, compared to $1,848 in 2023.
2. Medicare Part B Premiums are Getting Higher
A crucial factor influencing the exact amount beneficiaries receive is their Medicare Part B premium, often deducted directly from Social Security checks.
This premium covers medical expenses, including doctor and provider services, outpatient care, home health care, durable medical equipment, and certain preventive services.
The standard monthly premiums are set to increase by $9.80 per month, reaching $174.70 in 2024, compared to $164.90 per month in 2023.
Factors affecting retirement income also include the income-related monthly adjustment amounts (IRMAA) impacting Medicare Part B premiums. People with higher incomes will face increased payments.
While adjustments to Medicare Part B premiums are generally not allowed, there is one exception, as noted by certified financial planner Tim Steffen, director of advanced planning at financial services company Baird.
3. Retirement Earning Test Can be One of the Factors Affecting Retirement Income
Claiming Social Security between the age of 62 and your full retirement age leads to reduced benefits for starting early. Continuing to work may subject you to the retirement earnings test if your earnings surpass a specific threshold.
In 2024, the earnings exempt from this test will increase to $22,320, up from $21,240 in 2023. For every $2 in earnings exceeding this limit, $1 in benefits will be withheld.
The positive aspect is that benefits withheld due to the retirement earnings test are later applied to your monthly benefits upon reaching full retirement age.
It’s crucial to note a separate earnings test threshold for the year you turn full retirement age.
In 2024, this threshold increases to $59,520 for the months before reaching full retirement age, up from $56,520 in 2023. During the year you turn full retirement age, $1 in benefits is withheld for every $3 in earnings above the limit.
Considering factors affecting retirement income, the earnings test becomes crucial when deciding to claim retirement benefits early. The higher threshold, nearing $60,000, for the year you turn full retirement age also brings an opportunity.
Elsasser illustrates that if you turn full retirement age in July and earn around $10,000 per month before your birthday, starting benefits on Jan. 1 may exempt you from the earnings test.
4. Federal Taxation Can Also Affect
Factors affecting retirement income include the potential federal taxation of Social Security benefits.
The tax rate hinges on your combined income, calculated by adding half your benefits to adjusted gross income and nontaxable interest.
If your combined income falls between $25,000 and $34,000 for individual filers or $32,000 and $44,000 for married couples filing jointly, you may be taxed on up to 50% of your benefits.
It’s important to note that up to 85% of your Social Security benefits may be taxable if your individual combined income exceeds $34,000 or if you’re married with more than $44,000 in combined income.
These thresholds remain constant, but as benefit income increases annually with COLA, more of it may become subject to taxes over time.
Research from The Senior Citizens League suggests that due to the 8.7% COLA for 2023, more beneficiaries may face federal income taxes on their benefits this tax season. The group advocates for updating and annually adjusting tax thresholds to alleviate the tax burden on seniors’ benefit income.
Mary Johnson, a Social Security and Medicare policy analyst at The Senior Citizens League, highlights that taxation has become a growing concern for retirees.
To mitigate the risk of a substantial tax bill, retirees may choose to have money withheld from their monthly Social Security checks.