The Social Security program, one of the most important pillars for millions of retirees across the country, is undergoing significant changes this year. For many, these adjustments are not just important but can have a direct impact on their monthly income. Among the most notable changes for 2024 are COLA, the expiration of certain spousal benefits, and modifications in the overpayment recovery process. In this article, we will explain how these changes may affect you and what steps you can take to adapt.
Every year, one of the most talked-about aspects of Social Security is the cost-of-living adjustment, also known as COLA. This adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and its purpose is to adjust Social Security payments to maintain purchasing power in the face of inflation.
Cost-of-Living Adjustment (COLA) in Social Security
In 2023, we saw a historic 8.7% increase in benefits due to the high inflation rates. However, for 2024, the increase has been much more modest, sitting at just 3.2%. Looking ahead to 2025, the expected COLA increase is predicted to be even smaller, with estimates hovering around 2.57%. These more modest adjustments reflect a moderation in inflation, but for many beneficiaries, the smaller increases might raise concerns.
While these adjustments still provide some relief, it’s important to consider how they may influence your monthly expenses.
The full retirement age and how it affects your benefits
Another key point to consider is the changes related to full retirement age, which directly affects when and how you can start receiving your full Social Security benefits. For those born between 1954 and 1960, the full retirement age varies slightly, starting at 66 years old and gradually increasing to 67 for those born in 1960 or later. This means that if you choose to retire before reaching your full retirement age, your monthly benefits will be reduced.
If you are nearing retirement age, it’s essential to think about how this adjustment might impact your financial planning. Delaying retirement until you reach full retirement age, or even beyond if possible, could result in higher monthly payments throughout your life. Taking the time to evaluate this option can be crucial in ensuring financial stability during retirement.
Expiration of spousal benefits
For many years, one of the most popular strategies for married couples was to alternate between their own benefits and those of their spouse to maximize their Social Security income. However, under the Bipartisan Budget Act of 2015, this option has been gradually phased out, and 2024 marks the final end of this benefit for many people. As of January 1 this year, only those born before January 1, 1954, will be able to continue utilizing this strategy.
For couples who do not fall within this group, it’s important to reassess how the expiration of this benefit will affect their retirement plans. This may require evaluating other income sources or finding alternative strategies to optimize benefits over time. Taking a proactive approach can help ease the transition as this benefit fades out.
Overpayments and the new recovery process
Another factor to keep in mind is overpayments. Sometimes, the Social Security Administration (SSA) may mistakenly pay beneficiaries more than they are entitled to due to errors or incomplete information. When this happens, the SSA typically notifies beneficiaries and gives them 30 days to return the excess amount.
If the repayment is not made within that timeframe, the agency withholds a portion of future Social Security payments until the overpayment is fully recovered.