These are the four most important things for retirees to understand about Social Security.
You could be reading for a very long time if I attempted to address everything retirees need to know about Social Security. Or, more likely, you’d throw in the towel and go do something else.
But I won’t try to cover everything under the sun about Social Security. Instead, here are four especially important things about Social Security that all retirees need to know in 2024.
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1. How much your Social Security benefits will be
Arguably the most important thing retirees should know about Social Security is how much your benefits will be. Of course, the exact benefit amount varies from person to person. To get an estimate of your Social Security benefits, go to the Social Security Administration’s website.
While I can’t tell you how much you will receive from Social Security, I can point out the factors that will affect your benefits. The most important one is your earnings record. The Social Security Administration uses your 35 highest-earning years to calculate benefits.
When you retire is also paramount. The full retirement age (FRA) for anyone born in 1960 or later is 67. If you retire earlier, your Social Security benefits will be reduced. However, if you hold off on claiming benefits, you’ll receive delayed retirement credits.
2. How your benefits will be taxed
There could be good news and bad news for retirees about how their benefits will be taxed. Let’s start with the good news: Most states don’t tax Social Security benefits. As of now, 40 states don’t tax benefits. The 10 exceptions have tax rules that could still work to your advantage.
Now for the bad news: Uncle Sam does impose federal taxes on some Social Security benefits. Around 40% of Social Security recipients have to pay federal income taxes on their benefits. To find out if you’ll be one of them, look at the table below:
| Federal Tax Filing Type | Combined Income | Social Security Benefits Taxable? |
|---|---|---|
| Individual return | <$25,000 | No |
| $25,000 to $34,000 | Yes — up to 50% of your benefits | |
| >$34,000 | Yes — up to 85% of your benefits | |
| Joint return | <$32,000 | No |
| $32,000 to $44,000 | Yes — up to 50% of your benefits | |
| >$44,000 | Yes — up to 85% of your benefits | |
| Married, filing separate returns | Any amount | Probably yes |
Data source: Social Security Administration.
3. How continuing to work could affect your benefits
Can you collect Social Security retirement benefits but continue to work? Absolutely. However, your benefits could be reduced if you’re under your full retirement age.
For 2024, the Social Security Administration will deduct $1 from benefits for every $2 you earn above the annual limit of $22,320. The rules change during the year you reach your full retirement age. Your benefits will be reduced $1 for every $3 you earn above $59,520.
There is a silver lining, though. Once you reach your full retirement age, your earnings from continuing to work won’t reduce your benefits regardless of how much you make. Also, the Social Security Administration will recalculate your benefit and give you the full withheld amount back.
4. What the future will be for Social Security
You might have heard that Social Security is going bankrupt. That’s not the case. However, the program’s trust funds will indeed run out of money if nothing changes. The Social Security Trustees currently project that the Social Security trust funds will be depleted in 2035. After that, the program will only be able to pay 83% of benefits.
The important thing to note with this bleak future for Social Security, though, is that it can be prevented. If reforms are made to generate additional revenue for the program and/or reduce its expenses, current retirees’ benefits don’t have to be negatively affected.