As expected, on October 12th the government announced the Cost of Living Adjustment (COLA) for the forthcoming year. Consistent with early predictions, everyone on Social Security will receive a 3.2% bump in their gross benefit payment starting in January 2024. While this increase pales in comparison to last year’s historic 8.7% COLA increase, it is nevertheless welcome news for seniors already struggling with inflation-induced higher prices for pretty much everything purchased. For the average retiree receiving $1,907 from Social Security in 2024, the COLA will mean an extra $61 each month to help offset living costs. Those with a higher monthly Social Security payment will get more; those with a smaller check less.
How is COLA Calculated?
The annual COLA percentage of increase varies, depending on inflation as experienced in the 3rd quarter of each year. Inflation for the months of July, August, and September of the current year – measured by the Consumer Price Index for Urban Wage Earners & Clerical Workers or “CPI-W” – is compared to the same period last year, and the difference, if any, is the COLA percentage for next year. A relatively simple process, but the after-the-fact nature of a computation based on higher prices already paid leaves most seniors still struggling to make ends meet, especially as inflation continues. Already inflated prices just don’t seem to stop rising.
Is 2024 COLA Enough?
The 3.2% increase for 2024 may seem inadequate for those struggling to make ends meet, but it is higher than usual. For the two decades preceding this year, average annual COLA was about 2.5%, including several years (2010, 2011, and 2016) when no COLA increase at all was given. Inflation, when kept in check, results in a smaller COLA increase, but soaring inflation over the past several years has driven consumer prices to an all-time high, and those higher prices (measured by the CPI-W) are what caused the current higher COLA. So, is the higher COLA enough to offset inflated prices? Well, COLA doesn’t help us recover money already spent so, in that sense, it’s not enough. But any increase in the monthly Social Security payment is welcomed by those who rely heavily on Social Security for their existence. In fact, of Americans over age 65, about 40% rely on Social Security for at least 50% of their monthly income[1], and about 14% get at least 90% of their income from Social Security.[2] So although COLA cannot recover money already spent, it is critically important to the financial wellbeing of so many American seniors. COLA will never be enough to catch up but is nonetheless crucial.
The COLA/Medicare Conundrum
Few would say annual COLA increases are not important, in many cases crucially important, to most Social Security recipients. But, as most seniors know, healthcare expenses are also a large part of their monthly budget, and the Medicare Part B premium[3] is a significant monthly expense. Here’s some bad news: the Medicare Part B premium for 2024 is going up by $9.80, from $164.90 per month in 2023 to $174.70 per month in 2024, and that will become effective in January 2024 – the same month you will see the 3.2% increase in your Social Security benefit payment. Since the Medicare Part B premium is automatically deducted from Social Security payments, instead of seeing the full 3.2% COLA increase in your January 2024 Social Security payment you’ll see an increase which is $9.80 less than 3.2%. Essentially, your 2024 gross monthly Social Security benefit will increase by 3.2%, but your net monthly Social Security payment will include a deduction for the higher Medicare premium, partially offsetting your 2024 COLA increase – an unavoidable result of Medicare premiums being deducted from Social Security payments.
Still, Social Security’s annual Cost of Living Adjustment is crucial to nearly all American seniors. Even if it sometimes seems inadequate to completely offset the inflationary damage to our pocketbooks, and even though the COLA increase will be partially offset by an increased Medicare premium, every extra dollar still counts for those who rely on Social Security.
[1] 37% of men and 42% of women over 65 get at least 50% of their income from Social Security.
[2] 12% of men and 15% of women over 65 rely on Social Security for 90% or more of their income.
[3] Medicare Part B is healthcare coverage for outpatient services, for which there is a monthly premium.
The AMAC Foundation’s Social Security Advisory Services represent a source of on-time, on-the-mark guidance for those approaching or receiving Social Security – at no cost. AMAC’s nationally accredited advisors are invaluable, helping members understand risks, benefits, timetables, and how best to access the Social Security system.
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