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The cost-of-living adjustment for Social Security in 2024 will be 3.2%, compared with 8.7% in 2023, the Social Security Administration said Thursday. This translates to an average increase of about $60 a month for recipients.
In 2023, Social Security recipients received the highest COLA in more than 40 years amid rising inflation. The average COLA over the last 20 years is 2.6%, according to the nonpartisan Senior Citizens League.
“Inflation is an emotional issue for retirees, who may feel they are on a fixed income — whether that’s true or not,” said Rob Williams, managing director of financial planning at Charles Schwab. “Inflation has been moderating, which is good news for retirees. We don’t see inflation going back to the hyperinflation of the ’70s.”
COLA is not so much a raise as an adjustment that helps the roughly 67 million Social Security beneficiaries catch up with inflationary pressures. Inflation was lower this year than last year, which means the COLA is also lower.
The COLA announcement comes as Social Security is facing a funding shortage. If no action is taken, the trust fund that supports Social Security will be able to pay full benefits only until 2033, at which point the fund’s reserves will become depleted and only able to pay 77% of scheduled benefits.
Social Security is an important benefit for older Americans. It represents roughly one-third of an average retiree’s total income, according to Mike Lynch, managing director of applied insights at Hartford Funds. And the Social Security Administration found that about half of the senior population lives in households that receive at least 50% of their family income from Social Security benefits, and about a quarter of older households rely on Social Security benefits for at least 90% of their family income.
“Retirees can rest a little easier at night knowing they will soon receive an increase in their Social Security checks to help them keep up with rising prices. We know older Americans are still feeling the sting when they buy groceries and gas, making every dollar important,” said AARP Chief Executive Jo Ann Jenkins.
Some other adjustments that take effect in January of each year are based on the increase in average wages. The maximum amount of earnings subject to the Social Security tax — known as the taxable maximum — will increase to $168,600 from $160,200.
“Social Security’s COLA is great news for beneficiaries. It will help them keep up with rising costs. Unlike Social Security, the value of private savings — like 401(k)s and IRAs — erodes over time. Most pensions aren’t adjusted for inflation, either. Social Security is the only form of retirement income that keeps up with inflation,” said Kathleen Romig, a senior policy analyst at the nonpartisan Center for Budget and Policy Priorities.
The increase will result in an average of $59 more per month in Social Security income, according to AARP. Social Security’s current average monthly benefit is $1,789, according to the Senior Citizens League.
“Although a smaller bump this year, this boost in benefits can 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,” said Katherine Tierney, a senior retirement strategist at Edward Jones.
Read: Inflation is already racing past next year’s Social Security COLA
“How much you withdraw from your investment portfolio each year plays the biggest role in ensuring your money lasts through retirement. And small adjustments, such as reducing your withdrawals during down markets, can have a meaningful impact on your portfolio’s longevity,” Tierney said.
The consumer-price index for urban wage earners and clerical workers, known as CPI-W, is the index that’s used to determine the annual COLA. That index more heavily weights costs for transportation, food, apparel and other expenses typical for urban workers.
Read: Headline consumer inflation hotter in September than forecast on higher shelter costs
There’s another consumer-price index that looks specifically at spending by older people, called the CPI-E. It focuses more on the cost of healthcare and housing and other goods and services that retirees typically use. Some legislators have pushed to switch the COLA calculation to that index in proposals intended to improve the Social Security payout.
The large COLAs in the past two years — 8.7% in 2023 and and 5.9% in 2022 — have had some drawbacks for beneficiaries in terms of taxes and other benefits.
For example, Social Security benefits are adjusted for inflation, but the benchmarks for Social Security beneficiaries’ tax liabilities — if they’re earning income while receiving their benefit checks — haven’t been updated since 1984. When individuals go over those thresholds, they may be responsible for paying income tax on a portion of their benefits.
Higher benefits also mean that some older adults get pushed over the income limit for certain programs such as the Supplemental Nutrition Assistance Program, some rent subsidies and heating assistance.
According to a new Senior Citizens League survey, 62% of respondents reported they got a lower level of assistance or lost some assistance last year due to higher income resulting from the COLA.
Overall, the survey found that older adults are pessimistic about their finances in the coming months and about the growing potential for cuts to Social Security benefits in coming years. A total of 68% of survey participants report that their household expenses remain at least 10% higher than one year ago, although the overall inflation rate has slowed. Worry that retirement income won’t be enough to cover the cost of essentials in the coming months is a top concern of 56% of survey respondents.
Also, as many as 26% of 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 — that is, for tax year 2022 — according the Senior Citizens League. The group expects more beneficiaries to become liable for federal income taxes on their Social Security benefits for the first time in the 2024 tax season.
Another worry for many retirees is medical costs, which tend to rise by more than inflation, Romig said. Medicare Part B costs for 2024 will increase by an estimated 6%, which outpaces the 3.2% COLA. Typically, Medicare Part B premiums are automatically deducted from a retiree’s Social Security check, so the COLA will be partially offset by an increase of about $9.90 in Medicare Part B, Romig said.
Social Security and the price of prescription drugs are expected to be major issues for voters age 50 and older in the 2024 presidential election.
The anticipated depletion of Social Security’s trust fund reserves would occur if Congress doesn’t act in time to pass legislation to bolster the program. Social Security is often referred to as the third rail of politics because it’s seen as lethal to touch it.
Congress has never let Social Security miss a payment, but there have been no substantial changes to the program since the 1980s.
“AARP is urging Congress to work in a bipartisan way to keep Social Security strong and to provide American workers and retirees with a long-term solution that both current and future retirees can count on. Americans work hard to earn their Social Security, and it’s only fair for them to get the money they deserve,” AARP’s Jenkins said.
