The saying “new year, new you” doesn’t always apply to a well-intentioned New Year’s resolution maker. January 1 is also the date that many new laws and regulations passed the previous year go into effect. For 2024, the first day of the year brought about a slew of new changes to Social Security, many of which will have a direct impact on your clients and prospects. Are you familiar with those changes?
This year’s modifications to Social Security encompass a spectrum of alterations, from increased benefit checks to adjustments in tax implications. Keep scrolling to delve into the key changes that financial advisors should be aware of and how they can strategize to optimize their clients’ Social Security benefits.
Benefit checks are getting bigger
As announced in October, beneficiaries will receive a 3.2% cost-of-living adjustment. While not nearly as big as the 2023 8.7% COLA boost, this still gives retirees an extra $60 a month in the bank. Just keep in mind this will likely be offset by the 6% increase in Medicare Part B premiums. This is a good opportunity to sit with your clients and analyze the impact of the COLA increase on their overall retirement income and adjust their plans accordingly.
Higher taxes for higher earners
Another change this year will affect the country’s higher-wage earners. The Social Security tax wage base is jumping up by 5.2% in 2024. This will take the wage base from $160,600 to $168,200. Your clients who earn the latter or more need to prepare to pay an additional $520 in taxes toward the Social Security program.
Higher maximum monthly payouts
Before January 1, 2024, the maximum monthly payment a person could receive at full retirement age was $3,627. Now that amount has climbed to $3,822. This only pertains to about 2% of eligible beneficiaries. To get the maximum payout, a person would need to meet the following criteria:
- Wait until full retirement age to claim benefits
- Work for at least 35 years
- Meet or surpass the maximum taxable earnings cap throughout those 35 years
This is an opportunity to engage with prospects with information about how to optimize claiming strategies, such as delaying benefits or coordinating spousal benefits to enhance their overall retirement income picture.
Incrementally tougher qualification for benefits
Another change that rang in with the new year will impact future beneficiaries for generations to come. The majority of us earn our future Social Security benefits by working. To qualify for our benefits, we need to amass a total of 40 lifetime work credits. A worker can earn up to 4 credits a year. Last year, one would have to earn $1,640 in income to receive one lifetime work credit, or $6,560 to get your 4 work credits for the year. This amount has now jumped to $1,730 in earned income to qualify for a quarter of coverage, or $6,920 for the full year’s worth of credits. This is a low bar, but one that people should keep in mind as they move through their careers toward retirement.
Navigating the Social Security program
The Social Security program can be complex and hard for most people to navigate, and missteps can have a huge impact on one’s retirement income. This is why you play a pivotal role in helping your clients understand changes as they come. From optimizing benefit checks to managing tax implications, staying informed and proactive is essential. By understanding the nuances of the recent modifications, you can empower clients to make informed decisions that align with their long-term financial goals and ensure a secure and comfortable retirement.