Whether you’re just starting your career or enjoying retirement, Social Security likely plays or will play, a crucial role in your financial well-being.
For decades, Gallup has surveyed retirees and non-retirees to gauge their reliance on Social Security income.
A significant percentage of both groups depend on these benefits to make ends meet, highlighting the program’s importance.
With the annual cost-of-living adjustment (COLA) announcement just around the corner (October 12, 2023), all eyes are on what’s in store for Social Security beneficiaries in 2024.
The annual COLA is an adjustment made to Social Security benefits to account for the inflation that retirees face.
If the cost of goods and services rises, Social Security benefits should increase to maintain purchasing power.
This adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), specifically, readings from each year’s third quarter (July through September).
The COLA increase is determined by comparing the average third-quarter CPI-W reading from one year to the next.
In 2023, beneficiaries received an 8.7% COLA, the highest in decades, due to surging inflation. The big question now is what beneficiaries can expect in 2024.
According to senior Social Security policy analyst Mary Johnson at The Senior Citizens League (TSCL), retirees can anticipate an above-average COLA of 3.2% in 2024.
While this is lower than 2023’s exceptional increase, it surpasses the 2.6% average COLA over the past two decades.
2024 Social Security COLA: Impact on Retirees and Challenges Ahead
For the nearly 50 million retired workers receiving benefits, a 3.2% COLA translates to approximately a $59 increase in their monthly checks starting in 2024.
This would result in an average monthly use of around $1,899, totaling $22,788 annually.
It’s not just retired workers who benefit from the COLA adjustment.
The approximately 7.5 million workers with long-term disabilities and 5.8 million survivor beneficiaries will also see their payouts increase.
Disabled workers may receive nearly $48 extra monthly, while survivor beneficiaries could receive almost $47 more.
Despite the positive COLA outlook, some retirees face challenges.
The CPI-W, focused on ‘urban wage earners and clerical workers,’ doesn’t adequately account for the spending habits of seniors.
This underrepresentation of senior spending leads to losing purchasing power over time.
TSCL reports a 36% decline in Social Security income’s purchasing power since 2000.
Additionally, Medicare Part B premiums covering outpatient services are expected to rise in 2024 due to expensive medications like Alzheimer’s drug Leqembi.
For some low-earning retirees, higher Part B premiums may offset the COLA increase.
The 2024 Social Security COLA is anticipated to be above average, providing much-needed relief for retirees.
However, challenges persist, with the CPI-W’s inability to accurately reflect senior spending habits and potential Medicare Part B premiums increases.
As retirees eagerly await the announcement, staying informed about the impacts and potential challenges associated with Social Security benefits is crucial.
Source: The Motley Fool