What Could the New Social Security Cost of Living Rate and the Medicare Part B Premiums Increase Mean to You?

What Could the New Social Security Cost of Living Rate and the Medicare Part B Premiums Increase Mean to You?
Topics Retirement

Social Security’s 2023 Cost of Living Adjustment (COLA) was one for the record books at 8.7% marking the biggest adjustment in more than 40 years. It provided many retirees with a much-needed reprieve from the impact of decades of high inflation. Social Security’s COLA will not be as generous for 2024 at 3.2%. While this increase is larger than the historical average over the past 20 years, it comes from lower inflation and the Fed’s aggressive interest rate increases. Additionally, 2024 Medicare Part B premiums will increase by $9.80 from $164.90 to $174.70.[1]

With more than 71 million Americans receiving social security benefits, most are seniors who will see the increase in benefits come January 2024. With the average Social Security benefit at $1,848, a 3.2% COLA means that beneficiaries will see an increase of more than $50 per month, and in some cases possibly more. The COLA applies even for seniors who aren’t yet collecting benefits, as anyone age 62 and older will automatically receive a boost.[2]

Maximum Wage Base

The Social Security tax rate of 7.65% (6.2% Social Security, 1.45% Medicare) paid by both employer and employee for a total of 15.3% remains the same. However, the maximum earnings subject to taxes will increase from $160,200 in 2023 to $168,600 in 2024. An additional 0.9% Medicare tax applies to individuals or married couples filing jointly with earned income of more than $200,000 and $250,000, respectively.[3]

Earnings Limits

The earnings limits for 2024 have also increased. For those collecting Social Security before full retirement age, Social Security will withhold $1.00 in benefits for every $2.00 above $22,320 in earnings or earned income. The previous limit was $21,240. The year an individual reaches full retirement age (specifically the months prior), $1.00 in benefits will be withheld for every $3.00 in earnings above $59,520. Previously, the limit was $56,520.[4]

Medicare Part B Premiums

The Center for Medicare & Medicaid announced that 2024 Medicare Part B Premiums, which are automatically deducted from social security benefits, will increase by $9.80 or 5.9% from $164.90 to $174.70. This is in contrast with last year’s decrease of $5.20, meaning the average Social Security beneficiary will see a net increase in monthly benefits of $50.00 or less. The thresholds for Income Related Adjustment Account or IRMAA, which applies to high-income beneficiaries, also increased from $97,000 and $203,000 for single and married couples respectively to $103,000 and $206,000. Medicare open enrollment started October 15, 2023, and ends December 7, 2023.[5]

From a financial planning standpoint, careful consideration should be given to any potential tax implications as it relates to COLA with a keen focus on tax reduction strategies, including but not limited to, charitable giving, especially for those at Retirement Minimum Distribution (RMD) age 73 paying down debt or reinvestment of surplus funds.

To understand more about your social security benefits, and other important details, log on to your own account at https://www.ssa.gov/myaccount.

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