Social Security recipients can expect a 3.2% cost-of-living adjustment (COLA) in 2024, according to the Social Security Administration (SSA) announcement on October 12.
While notably lower than the 8.7% adjustment in 2023, this increase still offers some financial relief to more than 66 million beneficiaries.
The COLA is calculated based on the Consumer Price Index for All Urban Consumers (CPI-U), and the 3.2% figure represents the third-highest increase over the past twelve years.
The annual COLA is a critical factor for millions of Social Security beneficiaries, as it aims to help them cope with the rising cost of living.
The COLA is determined based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the year’s third quarter.
This year, the 3.2% COLA will add an extra $57.35 a month to the average Social Security retirement benefit, which stood at $1,792.37 monthly as of August 2023.
Although this figure is a significant drop from the 2023 COLA, which was about $146 per month, it remains substantial in the context of long-term trends.
Economic Factors Leading to a Reduced COLA
The reduced COLA for 2024 can be attributed to the declining inflation rate observed throughout the year. In September, the CPI-U rose by 0.4% every month, a notable decrease from the 0.6% increase observed in August.
On a year-over-year basis, the overall inflation rate rose by 3.7%. This decrease in inflation rates compared to the previous year has led to a smaller COLA, especially compared to the higher adjustments of 2023 (8.7%) and 2022 (5.9%).
However, the 3.2% increase is still relatively generous compared to the historical average of the past two decades.
The 3.2% COLA will become effective in January 2024 for Social Security beneficiaries and in late December 2023 for about 7.5 million individuals who receive Supplemental Security Income (SSI) benefits.
his adjustment is expected to help millions of recipients better cope with their day-to-day expenses, but it may only partially offset the challenges posed by rising costs.
While the COLA is a welcome increase for seniors, it might need to fully address their financial concerns.
A survey conducted by The Senior Citizens League (TSCL) found that 68% of respondents reported household expenses remaining at least 10% higher than a year ago despite a slowing overall inflation rate.
This situation has persisted over the past year, causing significant concern for 56% of survey respondents who worry about their retirement income being insufficient to cover essential expenses.
Persistently high prices in housing, healthcare, food, and utilities continue to erode the purchasing power of retirees.
The COLA, while an important measure to help seniors keep up with inflation, does not fully alleviate the financial burden on older Americans.
Despite these challenges, experts emphasize that Social Security plays an invaluable role in protecting retirees’ finances.
Unlike other sources of retirement income, such as private savings, 401(k)s, IRAs, and most pensions, Social Security is adjusted for inflation.
This ensures that beneficiaries can maintain their purchasing power in an economic environment where the value of other retirement income sources may erode over time.
Source: Go Banking Rates