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How Changes to Social Security Impact Teachers Retirement 2024

impact of changes to social security on teachers

You’ve probably read about the many changes Social Security has recently undergone. These adjustments, set to take effect in early 2024, will impact over 71 million individuals in America.

Social Security is a crucial component of retirement financing for thousands of teachers across the U.S., often supplementing income from pensions, IRAs, or 401(k) and 403(b) plans.

While Social Security benefits may cover 60% of public school educators in 39 states, you might be expecting to receive a Social Security check either through your spouse or from other employment sources.

Regardless of the circumstances, several changes to Social Security are set to occur in 2024, and teachers must be aware of these updates and their impacts. These developments include:

  • Social Security benefits received a cost-of-living adjustment aimed at assisting retired workers and other recipients in coping with inflation.
  • Increase in Social Security taxes
  • Considerations about the increase in Medicare
  • Concerns about Social Security COLA falling short amidst inflation

Every year, one of the most anticipated updates in Social Security is the cost-of-living adjustment COLA, and 2024 is no exception.

Firstly, What Exactly is a Cost of Living Adjustment (COLA)?

A Cost-of-Living Adjustment (COLA) is an increase in Social Security and Supplemental Security Income (SSI) payments intended to offset the impact of the rising cost of goods and services in the economy, also known as inflation.

COLAs are determined by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) over a specific period. The Consumer Price Index (CPI) represents the average change over time in the prices paid by urban consumers for a basket of goods and services, acting as a key measure of inflation.

For example, the COLA for 2023 was 8.7%. Thus, if a teacher received $10,000 in Social Security benefits in 2022, their annual benefit for 2023 would increase to $10,870. Similarly, with a COLA of 3.2% for 2024, if someone received $10,000 in Social Security benefits in 2023, their annual benefit for 2024 would rise to $10,320 in total.

Cost-of-Living Adjustment in Social Security Benefits in 2024

Teachers receiving Social Security benefits will notice an increase in their benefits since January of this year due to the annual cost-of-living adjustment that came into effect.

The Social Security Administration reports a 3.2% payment increase to keep pace with the current rate of inflation. This adjustment translates to approximately $55 more per month on average for the nearly 67 million Americans who receive benefits.

This increase is more moderate compared to the 8.7% COLA seen in 2023, which was the highest in over four decades, indicating a stabilization in retail prices. Before the pandemic, the last time the COLA exceeded this year’s increase was in 2011, when it reached 3.6%.

Fortunately, the COLA adjustment aims to safeguard the purchasing power of Social Security benefits, resulting in an average monthly increase of $59 for retired workers this year, as reported by the Social Security Administration.

Additionally, there’s another positive news the average benefit for spouses of retired workers will also see an increase of $28 per month.

The Increase in Retirement Earnings Test Exempt Limits in 2024

In 2024, the retirement earnings test exempt amounts have increased. In general, Individuals are eligible for retirement benefits starting at age 62, regardless of whether they have retired.

Nevertheless, workers who choose to claim Social Security before reaching their full retirement age (FRA) may have a portion of their benefit temporarily withheld if their income exceeds specific thresholds.

These thresholds, known as the retirement earnings test (RET) exempt amounts, are crucial for retirees to consider when navigating their Social Security benefits.

To be more specific, the Social Security Administration’s official website outlines how the limits for the Higher and Lower Exempt Amounts are calculated for 2024.

How to Calculate the Exempt Amounts for 2024

Usually, the exempt amounts are computed based on formulas established by law. These formulas are applicable only if there is a COLA effective for December of the preceding year. Given there is a COLA for December 2023, the exempt amounts for 2024 are calculated per these statutory formulas.

Here is how the limits for the Higher and Lower Exempt Amounts for 2024 are calculated:

Calculation of the Lower Exempt Amount for 2024

The monthly exempt amount for 2024 is determined by the greater of two values:

  • The 1994 monthly exempt amount, multiplied by the ratio of the national average wage index for 2022 to that for 1992, or
  • The 2023 monthly exempt amount, which is $1,770.
  • If the calculated amount does not fall on a multiple of $10, it will be rounded to the nearest multiple of $10. The annual exempt amount is then determined by multiplying this adjusted (rounded) monthly exempt amount by 12.

Table 1 – Social Security Service Calculation Details for the Lower Monthly Exempt Amount

Amounts in
1994 monthly exempt amount
1992 average wage index
2022 average wage index
Computation$670 times (63,795.13 divided by 22,935.42) equals $1,863.61, which rounds to $1,860
Higher amount$1,860 exceeds the monthly exempt amount for 2023, so the monthly exempt amount for 2024 is $1,860
Source: ssa.gov

The annual exempt amount for 2024 is 12 times the monthly amount of $1,860, or $22,320.

Calculation of the Higher Exempt Amount for 2024

The process for determining the monthly exempt amount for 2024 involves the following steps:

  • The 2002 monthly exempt amount, multiplied by the ratio of the national average wage index for 2022 to that for 2000, or
  • The 2023 monthly exempt amount, which is $4,710.

If the result of the calculated amount is not a multiple of $10, round it to the nearest multiple of $10.
The annual exempt amount is then calculated by multiplying the adjusted monthly exempt amount by 12.

Table 2 – Social Security Service Calculation Details for the Higher Monthly Exempt Amount.

Amounts in
2002 monthly exempt amount $2,500
2000 average wage index 32,154.82
2022 average wage index 63,795.13
Computation$2,500 times (63,795.13 divided by 32,154.82) equals $4,960.00, which
rounds to $4,960
Higher amount$4,960 exceeds the monthly exempt amount for 2023, so the
monthly exempt amount for 2024 is $4,960
Source: ssa.gov

The annual exempt amount for 2024 is 12 times the monthly amount $4,960, or $59,520.

2024 COLA Effects on Spousal Benefits

As mentioned earlier, the average retired worker who received $1,847 per month in 2023 can expect their monthly payments to increase by $59, reaching $1,906 in 2024. However, the corresponding increase for spousal benefits will be smaller, with a $28 rise from $885 to $913 per month.

cost of living adjustment

This difference in benefit adjustments stems from the calculation method for spousal benefits. Initially, the government determines the primary insurance amount (PIA) of the eligible worker, which represents the benefit they would receive if they began claiming at their full retirement age (FRA), typically between 66 and 67 years old, depending on their birth year.

A spouse’s maximum potential benefit is up to half of their partner’s PIA. For example, if a spouse is entitled to a $2,000 monthly benefit at their FRA, their partner could receive up to $1,000 per month from the program. However, this amount may decrease if benefits are claimed before reaching the FRA.

For each month that Social Security is claimed early, the government permanently reduces the monthly benefits by a fraction of a percent. Early claimants experience a benefits reduction of 25/36 of 1% per month for the first 36 months of early claiming.

Beyond this period, the reduction increases to 5/12 of 1% of the base benefit for each additional month of early claiming.

Therefore, starting to claim a spousal benefit as soon as one becomes eligible at 62 years old results in receiving 30% less each month compared to the benefit at the FRA of 66. For those with an FRA of 67, the reduction increases to 35% by claiming at 62.

This system explains why spousal benefits can be significantly lower than the worker’s benefit. Nonetheless, individuals previously receiving checks larger than $885 will currently see above-average payments in 2024.

social security benefits

Social Security: Higher Benefits With Increased Tax Obligations

Now, the situation has reversed. In 2024, a large number of Social Security beneficiaries may face a higher tax bill due to an anomaly within the Social Security framework.

Beneficiaries whose income exceeds a modest threshold will likely be required to pay federal income taxes on their benefits. Notably, this threshold has remained unchanged since 1984 despite substantial increases in both inflation and benefits over the years.

Traditionally, as Social Security benefits rise annually with the COLA, more retirees find themselves subject to income tax on their retirement earnings each year. Additionally, many retirees receive income from other sources, such as IRAs or 401(k)s, which can further increase the portion of their Social Security benefits subject to taxation.

According to CBS News, the taxation thresholds are as follows:

  • Individual taxpayers with incomes between $25,000 and $34,000 may have up to 50% of their benefits subject to income tax. For those whose income exceeds $34,000, up to 85% of their benefits could be taxable.
  • Joint filers with incomes between $32,000 and $44,000 could see taxes on up to 50% of their benefits. If their income surpasses $44,000, up to 85% of their benefits could be subject to tax.

The channel states that, according to the Social Security Administration, the percentage of Social Security recipients required to pay taxes on their benefits has risen from fewer than 10% in 1984 to approximately 40% at present.

Tax Obligations for Workers

Additionally, some employees may encounter increased tax liabilities for Social Security in 2024. As the Social Security wage base increases annually in line with the national average wage index, almost every year, a greater portion of income becomes subject to Social Security tax.

In recent years, the Social Security wage base has seen consistent growth, averaging approximately $3,960 per year over the last five years. However, for 2024, the wage base has jumped from $160,200 to $168,600, marking a significant increase of $8,400 compared to the previous year.

This rise is notably smaller than the $13,200 increase observed from 2022 to 2023, which was the largest increase on record.

Consequently, the maximum Social Security tax has increased from $9,932 to $10,453. This means that individuals earning over $168,600 in 2024 will pay approximately $521 more in Social Security taxes this year compared to if the wage base had remained at $160,200.

calculate exempt amount

Increase in Medicare

In 2024, the standard monthly premium for Medicare Part B —the segment of the federal health care program, that covers physician consultations and other outpatient services — is set at $174.70. This represents an increase of $9.80 from the previous year’s premium of $164.90.

Additionally, the annual deductible for all Medicare Part B beneficiaries has been raised to $240, an increase of $14 from the $226 deductible in 2023.

For higher earners, the costs are more significant. Surcharges for individuals with high incomes are determined based on their adjusted gross income (AGI) from two years prior.
In 2024, beneficiaries with an AGI exceeding $103,000 (or $206,000 for married couples filing jointly) in 2022 will face monthly Part B premiums ranging from $244.60 to $594.00.

Similarly, those with AGIs above $97,000 (or $194,000 for married couples filing jointly) in 2022 will see surcharges ranging from $230.80 to $560.50 in 2024. Despite these increases, according to Mary Johnson, a Social Security and Medicare policy analyst at the nonprofit The Senior Citizens League, the 2024 increase in Medical Part B —subscribed to by many retired teachers, though not all—was not as high as some initially feared.

Typically, after meeting the deductible, you’ll be responsible for paying 20% of the Medicare-approved amount for Part B services, known as coinsurance.

Potential Impact on Retirees’ Eligibility for Assistance Programs

The Senior Citizens League (TSCL) has expressed concerns about the potential impact of higher incomes resulting from substantial COLA increases over the last three years.

This could affect some seniors’ eligibility for low-income assistance programs such as SNAP (Supplemental Nutrition Assistance Program — formerly known as Food Stamps) and rental assistance. Furthermore, the recent termination of federal emergency COVID assistance for SNAP and Medicaid has increased the financial strain faced by many Americans.

In addition, there is growing concern about the future solvency of the Social Security trust funds. An analysis carried out by the Committee for a Responsible Federal Budget (CRFB) suggests that the trust funds could become insolvent by 2033.

This situation could result in an annual benefits cut of $17,400 for beneficiaries in today’s dollars. The report highlights that the Old-Age and Survivors Insurance (OASI) trust fund is at risk of insolvency due to a declining number of workers contributing to support an increasing population of retirees.

Without intervention from lawmakers, all recipients face an automatic 23% reduction in benefits each year.

Questions Arising Over Social Security COLA Falling Short Amidst Inflation Concerns

It’s important to note that COLA provisions in educators’ state and teacher systems may vary for those receiving pensions. Therefore, this concern primarily concerns school professionals who rely on the Social Security COLA.

The recently announced 3.2% Social Security COLA for 2024 may seem substantial compared to the 2.6% average seen over the past two decades.

However, despite this increase, the buying power of Social Security benefits has significantly eroded, losing approximately 36% of its value since 2000, according to ongoing research conducted by TSCL.

A staggering 80% of retirees believe that Congress should improve inflation protection by implementing a COLA that more accurately reflects the inflation experienced by older adults.

Since its inception in 1975, the Social Security COLA has been tied to the Consumer Price Index (CPI). However, the CPI fails to capture the unique spending patterns of retired households aged 62 and above, as noted by Fox Business.

Given that older and disabled Social Security recipients allocate a larger portion of their income towards housing and medical expenses — categories that often see faster inflation rates than the overall economy— a disparity emerges.

To address this concern, some advocates provide a more equitable basis for determining annual COLAs and safeguarding the income of the more vulnerable against the erosive effects of inflation and taxation.

bill wallace author teacher retirement plans

About Author

Bill Wallace blends his academic background in Literature with his ventures in International Business and finance. His professional journey took him across Europe, especially in Spain, where his passion for writing evolved. Since then, armed with his literary finesse and investment acumen, he has been crafting financial content for teachers worldwide. More about me.

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