Contributed by: Kali Hassinger, CFP®, CSRIC™
It was recently announced that the 2024 Cost of Living Adjustment for those receiving Social Security will be 3.2%. This is a far cry from the 8.7% increase received for 2023, but inflation, although remaining a common topic of conversation, has slowed over the last twelve months. The Cost of Living increase is calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from October 1st, 2022, through September 30th, 2023.
The Social Security taxable wage base will increase in 2024 from $160,200 to $168,600. This means that employees will pay 6.2% of Social Security tax on the first $168,600 earned, which translates to $10,453 of Social Security tax. Employers match the employee amount with an equal contribution. The Medicare tax remains at 1.45% on all income, with an additional .9% surtax for individuals earning over $200,000 and married couples filing jointly who earn over $250,000. This income level at which the surtax comes into play has remained unchanged since 2013.
For those collecting Social Security, the taxable portion of their benefit can range from 0%, 50%, or 85% based on income:
For those filing “individual” and their combined income is between $25,000-$34,000, they may have to pay income tax on 50% of their benefits, and if more than $34,000, up to 85% of their benefits may be taxable.
For those filing a joint tax return whose combined income is between $32,000 and $44,000, they may have to pay income tax on up to 50% of their benefits, and if more than $44,000, up to 85% of their benefits may be taxable.
For many, Social Security is one of the only forms of guaranteed fixed income that will rise over the course of retirement. The Senior Citizens League estimates, however, that Social Security benefits have lost approximately 33% of their buying power since the year 2000. This is why, when working on running retirement spending and safety projections, we factor an erosion of Social Security’s purchasing power into our client’s financial plans. If you have questions about your Social Security benefit or Medicare premiums, we are always here to help!
Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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