In a move that reflects the moderating inflation rates, the Social Security Administration (SSA) has announced a 3.2% cost-of-living adjustment (COLA) for 2024. This adjustment, while significant, is notably smaller than the inflation-driven boosts observed in the past two years.
Benefit Changes in Numbers
Starting January 2024, retirees' monthly payments will see an average increase of $50, bringing the estimated average monthly retirement benefit to $1,907, up from $1,848 in 2023.
This adjustment will affect over 71 million individuals who receive Social Security and Supplemental Security Income (SSI) benefits. It's worth noting that the exact increase a beneficiary will receive also hinges on the yet-to-be-announced Medicare Part B premium for 2024.
Historically, Medicare Part B premium payments are deducted directly from Social Security checks. Projections from Medicare trustees suggest that the average monthly premium might rise to $174.80 in 2024, from $164.90 in 2023.
Comparison with Previous Years
The 3.2% adjustment for 2024 contrasts sharply with the 8.7% increase for 2023 and the 5.9% for 2022. The 2023 adjustment was the largest in four decades, a response to record-high inflation rates. Over the past 20 years, the average COLA has been 2.6%, as per data from The Senior Citizens League, a nonpartisan senior group.
The method for determining the COLA involves calculating the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The data from the third quarter is averaged and compared with the third quarter average from the preceding year. Any increase determines the COLA's magnitude.
The Real Impact on Seniors
While the COLA aims to help beneficiaries cope with rising prices, the reality is that many retirees continue to grapple with high costs. A survey by The Senior Citizens League revealed that over two-thirds of respondents reported household expenses that were at least 10% higher than the previous year. Moreover, 56% expressed concerns that their retirement income might not cover essential costs.
Inflation has eroded the buying power of Social Security payments by 36% since 2000. To maintain the same purchasing power as in 2000, monthly benefits would need to increase by $517. This erosion of buying power is palpable for many, like Tom and Susan Freyer of Palmdale, California. The couple, largely dependent on Social Security and a small teacher's pension, have seen their discretionary funds diminish, with rising costs for medicine, homeowners' association fees, gas, and groceries.
The Broader Implications
The SSA's COLA is not without its critics. Some argue that the current formula for determining the annual adjustment is flawed. After accounting for Medicare premiums, the net increase is estimated to be around $50, which, according to Max Richtman, CEO of the National Committee to Preserve Social Security and Medicare, barely covers half a week's worth of groceries in many states.
Furthermore, substantial annual benefit increases could inadvertently harm some senior citizens. They might surpass the income thresholds for government assistance programs, such as food stamps, Medicaid, and rental assistance, or become liable to pay taxes on a portion of their benefits for the first time.
The 2024 COLA, while a relief for many, underscores the broader challenges facing Social Security beneficiaries. As costs continue to rise and the buying power of benefits diminishes, the need for a comprehensive review and potential reform of the system becomes increasingly evident.
