Seven ways retirement will be different in 2024

From AARP — By Andy Markowitz —

How changes in Social Security, Medicare, taxes and more will affect your finances

For most people, retirement finance is a delicate balance between income that’s likely less than what you made while working and expenses that may be lower in some areas (no more commuting) but considerably higher in others (more prescriptions and doctor visits).

Year-to-year changes in areas key to retiree life — Social Security benefits, Medicare premiums, tax and savings policies geared for older adults — can have a big impact on that balance, especially as they interact with economic shifts such as higher inflation or a market downturn. Here are seven things to know about your retirement money for the coming year.

1. Social Security payments

Social Security recipients will see their monthly payments rise by 3.2 percent as the 2024 cost-of-living adjustment (COLA) kicks in. The estimated average retirement benefit will go up by $59 a month, from $1,848 to $1,907.

The first retirement, disability and survivor benefit payments reflecting the increase go out in January. People receiving Supplemental Security Income (SSI), a Social Security–administered benefit for people who are age 65-plus, blind or have disabilities and have very limited income and assets, will get their first COLA-boosted payment Dec. 29.

The COLA is based on changes in prices for a set of consumer goods and services in the third quarter of 2023 compared to the same period the year before. Inflation slowed considerably over that time, producing a relatively modest COLA compared to 2022’s 8.7 percent increase, a 40-year high.

The 3.2 percent benefit boost should still provide a measure of protection against rising prices — particularly if the inflation rate continues inching down toward 2 percent in 2024, as the Congressional Budget Office projects — although for many beneficiaries its effectiveness could be slightly undercut by …

2. Medicare costs

After coming down by 3 percent in 2023, standard premiums for Medicare Part B are going back up in 2024, from $164.90 to $174.70 per month, a 6 percent increase.

Most Medicare enrollees have their premium payments for Part B, the portion of original Medicare that covers doctor visits and other outpatient treatment, deducted directly from their Social Security payments. For this group, the premium increase takes a $9.80-a-month bite out of the COLA benefit boost.

The annual deductible for Part B is also increasing, from $226 to $240.

Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans are expected to see little change in what they pay. These plans are provided by private insurers so costs vary, but Medicare officials estimate that the average monthly premium for an MA plan will go up by 64 cents, from $17.86 to $18.50 (and that most enrollees will not see any increase);and Part D plans will cost an average of $55.50 a month, down from 2023’s $56.49.

3. Retirement plan contributions

If you are 50 or older, you can put up to $8,000 into an individual retirement account (IRA) for the 2024 tax year. That includes the $1,000 catch-up contribution available to older savers. The cap for people under 50 is $7,000. In both cases, the contribution limit has been bumped up by $500 from 2023. (By the way, you can still make your contributions for the 2023 tax year — the deadline is April 15, 2024.)

The IRA catch-up limit is now pegged to inflation under a provision of the SECURE 2.0 Act of 2022, a federal law aimed at expanding Americans’ opportunities to save for retirement, but that did not produce an increase for 2024; the $1,000 cap is the same as in 2023.

Contribution limits also go up for people with workplace retirement plans. Those age 50-plus can contribute up to $30,500 this year to a 401(k), 403(b), and most 457 plans, or (for federal government workers) a Thrift Savings Plan. That’s $500 more than the 2023 cap. The contribution limit for younger adults goes up from $22,500 to $23,000.

Starting in 2025, there will be a new higher contribution cap for people ages 60 to 63.

4. RMDs

Required minimum distributions (RMDs) are a fact of later life for holders of most types of retirement savings accounts. (The notable exception is Roth IRAs, which are not subject to annual required withdrawals while the owner is alive. Starting with the 2024 tax year, this exception will also apply to Roth 401(k) and 403(b) accounts.)

The IRS uses a calculation based on the account balance and your life expectancy to determine the minimum you must take out each year. You’ll owe federal income taxes on the withdrawal, at your regular tax rate.

Most people subject to RMDs must make their withdrawal for the tax year by the last day of that year. In your first year of eligibility, however, you have until April 1 of the following year. SECURE 2.0 bumped the mandatory age for starting RMDs from 72 to 73, effective in 2023. (The minimum age will ultimately go up to 75, but not until Jan. 1, 2033.)

Thus, if you will turn 73 in 2024, you have until April 1, 2025, to make your first RMD. Anyone who is already 73 or older by the start of 2024 must make their withdrawal by the year’s end.

The penalty for failing to make your RMD in time is 25 percent of the amount by which your withdrawal fell short of the required minimum. That can be reduced 10 percent if you make good the full withdrawal and file a revised tax return in a timely manner.

5. Standard tax deduction

Most taxpayers take the standard deduction rather than itemizing on their tax returns. For the 2023 tax returns they must file by April 15, 2024, married couples in that majority can take $27,700 off their taxable income, up from $25,900 the year before. For individual taxpayers (single or married filing separately), the standard deduction increases from $12,950 to $13,850. Those filing as a head of household can deduct $20,800, up from $19,400 the previous year.

You get a bigger standard deduction if you or your spouse is 65 or older:

$1,850 more for a single filer or head of household (up from $1,750 for the 2022 tax year).
$3,000 more for a couple filing jointly (up from $2,800).

6. Full retirement age

Congress voted in 1983 to gradually raise the Social Security full retirement age (FRA) from 65 to 67. Four decades on, the change is nearly complete, with FRA reaching 66 and 8 months in the latter half of 2024.

For the past few years, FRA — the age when you become eligible to claim 100 percent of the retirement benefit calculated from your lifetime earnings — has been going up two months at a time, based on year of birth.

For people born in 1957, FRA is 66 years and 6 months. If you were born from July through December 1957, you will hit the milestone by the end of June 2024. The first children of 1958 will become eligible to claim their full retirement benefit in August. FRA settles at 67 for people born in 1960 or later.

You can start collecting retirement benefits before FRA — the minimum age is 62 — but your monthly payment will be permanently reduced, by as much as 30 percent. You can also wait past FRA and reap Social Security’s bonus for delaying benefits: an extra 8 percent a year until age 70.

7. Social Security earnings test

If you claim Social Security retirement benefits before reaching FRA and continue to do paying work, your benefits may be temporarily reduced. That depends on whether your annual working income exceeds a set limit called the earnings test.

For 2024, that limit increases from $21,240 to $22,320 for beneficiaries who will not reach FRA until a future year. Social Security withholds $1 in benefits for every $2 in earnings above the cap.

If you will reach FRA this year, the income threshold is higher ($59,520, up by $3,000 from 2023) and the withholding lower ($1 less in benefits for every $3 above the limit). When you reach FRA, the earnings test ends; there’s no withholding regardless of how much you earn, and Social Security recalculates your benefit amount to make up for the past reductions.

Andy Markowitz is a writer and editor for AARP, covering Social Security and fraud. He is a former editor of The Prague Post and Baltimore City Paper.

Contact Kleshinski, Morris & Morrison CPAs

If you need help with your personal or business taxes, or any type of professional accounting services, contact the experts at Kleshinski, Morrison & Morris CPAs. Reach us by phone at 419-756-3211, email to [email protected], or by filling out the contact form on this website at here.

Read full story