Social Security 2024: What To Know If You Have a Family Member Retiring
If you have a family member retiring in 2024, Social Security benefits are likely on the mind. As many as nine out of 10 Americans aged 65 or older received Social Security benefits as of June. Among those receiving Social Security, for 37% of men and 42% of women, the benefits add up to 50% or more of their income.
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People receiving Social Security benefits will receive a cost-of-living adjustment (COLA) increase of 3.2% in 2024 — or about $55 per month on average — due to cooling inflation. This might sound like a good thing; but, for folks who received an 8.7% COLA increase (an average of $140 per month) in 2023, it might actually feel like a cut, as it’s not even half as much of a boost as they saw last year.
Although considerably lower than the past two years, the 2024 increase is above the 20-year average of 2.6% and in line with expectations, according to Katherine Tierney, senior retirement strategist at Edward Jones.
“The COLA is based on the rate of inflation,” she said, “and the last two years saw outsized COLAs due to significant spikes in inflation that resulted from several unusual factors.”
In addition to the COLA, Tierney said, “Social Security also made its annual adjustments in other items for 2024, including the maximum taxable earnings amount ($168,600) and the earnings limit for retirees who file before reaching full retirement age ($22,320 for years before reaching full retirement age, $59,520 for the year a retiree reaches full retirement age).”
So what does this mean for your retiring family member? It’s time to take a careful look at your financial picture and consider some strategies for retiring.
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Put the Extra Toward Cash Reserves
Though these extra dollars may seem minimal, Tierney suggested that Social Security recipients could put that money toward their cash reserves.
“We generally recommend retirees maintain about one year’s worth of spending needed from their investment portfolio in cash and an additional 3-6 months’ spending in an emergency fund,” she explained. “Additionally, we recommend having another 3-5 years’ worth of spending needed from their investment portfolio in short-term fixed-income investments, which are now offering better income opportunities given multiple interest rate hikes.”
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Reassess Monthly Budgets
Compared to last year’s 8.7% COLA, along with rising Medicare Part B premiums, 3.2% is a significant concern for retirees, said Lauren Mendoza, a CPA and founder of Bank Standard, a business loan marketplace.
“It’s crucial to adjust budgets to accommodate increased healthcare costs,” she said. “Cutting non-essential expenses can help.”
Look Into Supplemental Income Sources
People who are retiring are probably not intending to stay in their current jobs, but they might want to consider part-time work or turning hobbies into income, Mendoza said. “This diversifies income and helps offset the [lower] COLA increase’s impact.”
Consider Delaying Retirement
If a family member is thinking about retiring, especially if Social Security benefits will be the primary source of income, it’s a good idea to push retirement off until age 70, when the person can receive the maximum benefits. Additionally, working a couple of more years will potentially allow the family member to save more money or not have to dip into any savings.
Tide Yourself Over With a 401(k)
If the family member decides to delay taking Social Security to age 70, the benefit amount will increase by around 8% per year until it hits the maximum. If the family member retires now, though, one solution is to take small deductions from a 401(k) plan to tide the relative over until the Social Security benefit reaches its maximum.
Though many people are nervous to dip into those long-term retirement accounts too soon, AARP suggests that the 8% gain on Social Security benefits is enough to offset what people might take out.
However, Tierney suggested that even the small COLA boost in benefits might help retirees better meet their day-to-day needs, given rising inflation.
“It may even allow them to reduce how much they need to withdraw from their investment portfolio, which can be especially beneficial in down markets,” she said.
Small adjustments can have a meaningful impact on a portfolio’s longevity, she added.
Account for Medicare Increases
While the Social Security COLA is increasing slightly, so are the premiums for Medicare Part B, the component of health insurance that covers all the big things like doctor visits, outpatient hospital services, some in-home health services, durable medical equipment and more.
In 2024 that will go up from $164.90 to $174.70, which chips away further at the average $55 Social Security benefit. Additionally, the annual deductible for Medicare Part B increases from $226 to $240. These increases together, totaling nearly $24, nearly cut in half the increase in Social Security benefits.
Remember the Gap
Social Security benefits pay out the month after a retiree designates them to begin, so people need to be prepared for that month gap. If your family member applies to have benefits start in January, the person will receive the first payment in February. The family member should make sure to have income or savings to tide him or her over until then.
Check Out Senior Property Tax Exemptions
Your relative might be all too aware of reaching senior status, but the world might not give the family member all of the immediate perks and discounts that come with this new stage of life. It’s incumbent on your family member to look into senior discounts wherever they can be found.
In some states and counties, for example, people can get exemptions that save money on property taxes each year.
Negotiate Lower Bills
Cell phone, cable service, internet and other providers might not be giving the best deals possible. Your family member should shop around or let the companies know he or she is thinking of leaving to see whether the family member can negotiate better rates — and maybe even a better service.
Use the Equity in Your Home
If your family member owns a home and has earned equity in it, this may be a great time to use that equity: Sell the home and downsize. The family member could consider taking out a small home equity loan or even renting out a room to bring in extra income.
In general, since the COLA increases are so small this year, experts recommend that anyone taking Social Security benefits should stay as frugal as possible, not take on any new expenses and look for ways to cut unnecessary costs.
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This article originally appeared on GOBankingRates.com: Social Security 2024: What To Know If You Have a Family Member Retiring
