2024’s Social Security Landscape: The Two Rules You Can Count On

Social Security and retirement regulations appear to undergo frequent revisions every year. From adjustments in the full retirement age to alterations in cost-of-living considerations, there’s abundant information that retirees and soon-to-be retirees must keep tabs on as each year comes to a close. 2024 is no exception, as seniors should anticipate several rule modifications, some of which may come as unexpected developments.

However, two specific Social Security rules will remain unchanged in the upcoming year, and this lack of alteration might be the most surprising aspect. Here’s what individuals approaching retirement or already retired need to be aware of:

Social Security Federal Income Tax

Social Security employs a measure known as “combined income” to ascertain the portion of an individual’s benefits subject to federal income tax. A combined income consists of adjusted gross income, any non-taxable interest income, and one-half of Social Security income.

The taxability thresholds depicted in the table below have remained unchanged for three decades:

Taxable Percentage of Social Security Benefits:

  • Up to 50% for Single Filers with combined income between $25,000 to $34,000
  • Up to 85% for Joint Filers with combined income over $44,000

These thresholds have remained fixed despite annual cost-of-living adjustments to Social Security benefits. Unlike regular income tax brackets, which are typically adjusted for inflation, the Social Security taxation rules do not incorporate such adjustments. Consequently, more of an individual’s Social Security income becomes subject to taxation each year, assuming all other factors remain the same.

Although careful financial planning may help individuals avoid excessive taxes on their Social Security benefits, staying below these thresholds and preventing missteps is becoming increasingly challenging.

Delayed Retirement Credits

Most people know they can receive a higher monthly Social Security benefit if they delay receiving benefits beyond their full retirement age. Each month of delay results in a two-thirds of 1% increase in the monthly benefit.

However, it’s essential to note that no additional retirement credits will be granted beyond the age of 70, and this aspect of the rule remains unchanged.

The absence of a rule change is particularly noteworthy because the full retirement age gradually increases. In 2024, individuals born in 1957 and 1958 will reach their full retirement age at 66 years and 6 months or 66 years and 8 months, respectively. This trend will continue until 2027, when those born in 1960 will attain full retirement age at 67.

The lack of alteration in delayed retirement credits implies that the maximum additional benefit one can receive for postponing retirement is diminishing. While individuals born between 1943 and 1954 could potentially receive up to 132% of their primary insurance amount by delaying until age 70, those born in 1960 or later will be limited to a maximum of 124% of their primary insurance amount.

Nevertheless, this doesn’t imply that postponing retirement until age 70 becomes less advantageous as a Social Security claiming strategy. In most cases, retirees will optimize their retirement savings by delaying benefits as long as feasible. Unless there are compelling reasons to expect a shorter-than-average life expectancy, it is generally advisable to delay claiming Social Security until the monthly benefit is maximized, provided it is financially viable.

Familiarity with the Rules

In many Americans’ retirement plans, Social Security plays a critical role. While staying informed about annual changes is crucial, it is equally important to understand how these adjustments influence the two rules above. For many individuals, these rules may present surprises when claiming benefits and paying taxes. However, by being well-versed in these rules, individuals can effectively plan and prepare their finances.