The increase in Social Security benefits next year will exceed the 20-year average, but it still pales in comparison to this year’s boost.
The Social Security Administration, the federal government agency that oversees the benefits, announced a 3.2% Social Security cost-of-living adjustment (COLA) for 2024. That’s well above the 2.6% average over the past two decades, but it’s less than half the 8.7% increase retirees saw in 2023, which was the biggest in four decades.
The increase will add more than $50 to the average monthly benefit of $1,790 starting in January, according to the SSA.
The adjustment, while not dazzling, will provide some comfort to the more than 70 million retired senior citizens and disabled workers who have faced higher prices this year, but it may not be enough to alleviate retirees’ ongoing budget concerns.
“This COLA might disappoint Social Security beneficiaries after last year’s adjustment,” Emerson Sprick, senior economic analyst at the Bipartisan Policy Center, told Yahoo Finance. “But it actually suggests that macroeconomic conditions are improving in a way that likely benefits seniors’ household finances. It goes without saying that having stable prices is highly preferable to having large COLAs.”
The COLA is calculated by averaging together the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August, and September and then comparing that figure with the same data last year. On Thursday, government data showed inflation rose 0.4% over last month and 3.7% over the prior year in September.
In general, people who receive Social Security benefits are notified by mail in early December about their new benefit amount. Most beneficiaries can also view their COLA notice online through their personal Social Security account at socialsecurity.gov/myaccount.
The once-a-year inflation adjustment began in 1975 under a formula made into law by Congress. And it significantly contributes to helping beneficiaries shoulder increasing day-to-day living costs.
“Of course, inflation isn’t uniform across the U.S. or the same for every person,” Sprick said. “Beneficiaries in regions that have seen higher inflation will lose some purchasing power while those in low-inflation areas will gain some purchasing power. But on average, the annual COLA ensures that a retiree’s benefit amount has the same purchasing power year after year.”
Still, older adults remain pessimistic about their finances in coming months and the growing potential of Social Security benefit cuts, according to a new retirement survey by The Senior Citizens League. More than two-thirds report that their household expenses remain at least 10% higher than one year ago, the survey found.
Worry that retirement income won’t be enough to cover the cost of essentials in the coming months is a top concern for 56% of survey respondents.
“Even though the rate of inflation has come down, prices are still that much higher than one year ago, and retirement incomes aren’t keeping up,” Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told Yahoo Finance.
The survey was conducted from January through September 7, 2023 and included 2,258 participants.
Social Security is the most common source of retirement income for retirees, however, fewer retirees who don’t have additional income–from retirement accounts, pensions, income from a job or interest and dividends on investments– feel like they are doing okay financially versus those who do, according to a report released in May from the Federal Reserve Board.
Rising costs for retirees’ budget next year may also be linked to Medicare premiums for 2024 which are typically announced in November, Johnson added. The Social Security Administration automatically deducts Medicare Part B premiums from Social Security benefits before the benefits are received.
Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A, which covers inpatient hospital care, skilled nursing facility, hospice, lab tests, surgery, and home health care.
The 2024 premium is expected to increase around $5 per month to about $179.80 per month, Johnson said. “But it could rise by almost $15 per month from 2023.”
And there’s an additional worry for retirees’ budgets.
“When incomes grow like they did this year with an 8.7% COLA, more older taxpayers pay tax on a bigger portion of their Social Security benefits, and we expect this trend to continue in 2024,” Johnson said.
About a quarter ( 26%) of The Senior Citizens League survey participants who have received Social Security for more than three years report paying taxes on a portion of their benefits for the first time during the 2023 tax season (for tax year 2022).
“Because Social Security recipients received an even higher COLA of 8.7% in 2023, we expect more beneficiaries to become liable for federal income taxes on their Social Security benefits for the first time in the upcoming 2024 tax season,” Johnson said.
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on Twitter @kerryhannon.
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