Social Security Cost of Living (COLA) Is Likely to Increase in 2024

Following two years when Social Security Cost of Living Adjustments (COLAs) soared to the highest levels in decades, beneficiaries should not be surprised by more modest increases in monthly payments in 2024, reports a recent article, “Social Security COLA 2024: How Much Will benefits Increase Next Year?” from AARP.

The inflation gauge used by the Social Security Administration (SSA) to set the annual COLA rose at a 2.6% annual rate for July and 3.4% for August. These are the first two of three months the SSA uses to determine the final increase, which will be announced more formally in October.

The August uptick was a bit higher than anticipated, and September’s inflation numbers are expected to rise to similar levels. Analysts expect a 2024 COLA of about 3 percent.

This may seem like a letdown for recipients. Still, COLA is calculated to exactly offset the price increases faced by consumers, measured by the Consumer Price Index, since the prior COLA was determined.

A 3 percent COLA indicates inflation is slowing down or getting under control, which is especially important for seniors living on a fixed income. While a higher COLA sounds nice, it reflects rising prices, which can be far more challenging for retirees who count on Social Security benefits to pay their household bills.

All forms of benefits are affected by the COLA, including retirement, disability, family, and survivor benefits. The adjustment starts with the December Social Security benefits, which most folks receive in January 2024.

Benefits are calculated by the CPI-W, a subset of the main Consumer Price Index, which measures a broad range of retail prices. The SSA compares the average CPI-W for July, August, and September of each year to the figure for the same period the year before to arrive at the COLA for the year to come.

For example, the year-over-year changes in the CPI-W for the three months in 2022 were 9.1%, 8.7%, and 8.5%, respectively. Over the entire quarter, the index was 8.7% higher than average for the same period in 2021, resulting in the COLA used at the start of 2023.

If projections hold, and there’s no reason to think they won’t, the 2024 adjustment will align more with the relatively low inflation pre-pandemic period. When there’s no inflation, there’s no COLA. This happened in 2010, 2011 and 2016. The most significant adjustment ever? 14.3 percent in 1980.

Studies by the Center for Retirement Research show Social Security benefits generally keep up with inflation in the long term but can lag during short-term periods of volatility, depending on whether or not the price index is trending up or down when the COLA is set.

Beneficiaries in 2021 and 2022 lost buying power when COLAs were outpaced by surging inflation, peaking around 9 percent in mid-2022. This year, inflation was cooling somewhat when the 8.7 increase took effect and remained below the COLA level.

Another factor impacting the COLA’s value is Medicare costs. A rise in Medicare Part B premiums in 2024 would offset a portion of the COLA increase for Social Security recipients who have premiums deducted directly from their benefits, which is about 70 percent of Medicare enrollees.

Reference: AARP (Sep. 13, 2023) “Social Security COLA 2024: How Much Will benefits Increase Next Year?”

Will Social Security Get a Raise in 2022?

The COLA increase in Social Security is welcomed by seniors depending upon their benefits but the timing varies, says the article “Social Security Benefits Get a 5.9% Raise This Year–Here’s When You Should See That Extra Money” from the Lincoln Journal Star. Here’s what you can expect.

The first benefit check or automatic deposit should arrive with the 5.9% COLA. However, the timing depends upon your date of birth. If your birthday falls between the first and the 10^th of the month, those benefits should arrive on the second Wednesday of the month, so by January 12, you’ve should have received your first Social Security benefit with the COLA.

What if your birthday is between the 11^th and 20^th of the month? Benefits should arrive by the third Wednesday of the month. That’s a raise on January 19.

And if your birthday is late in the month, between the 21^st and 31^st, expect your benefits on the fourth Wednesday of the month—that would be January 26.

A caveat—if you’re collecting Social Security but have not yet enrolled in Medicare, then you’ll see a monthly increase of 5.9%. However, if you’ve enrolled in Medicare Part B and pay premiums directly from your benefits, your increase will be less. This is the push me—pull you of Social Security COLAs.

Medicare Part B premiums have increased, from $148.50 in 2021 to $171.10 in 2022, a total increase of $21.60. So, while you may have hoped for a true 5.9% increase, subtract the COLA from your premium hike to see what monthly benefit you’ll really get.

The annual deductible for all Medicare Part B beneficiaries is $233 in 2022. That’s a $30 increase from the $203 annual deductible in 2021.

Yes, this is the biggest COLA increase in a long time, as we have been in a low inflation environment for a very long time. If possible, it would be wise to take your COLA increase and set it aside to create or enhance a financial cushion. However, when living costs for everything from food to gas keep going up, it’s simply not possible for most people to save.

The reason this year’s COLA was so large is because of the high inflation rates from the third quarter of 2021. If inflation had been less, so would have been the increase. We don’t know what the future of Social Security will be, or what future COLAs will be. However, if at all possible, building in a little security of your own is the best recommendation.

Reference: Lincoln Journal Star (Jan. 7, 2022) “Social Security Benefits Get a 5.9% Raise This Year–Here’s When You Should See That Extra Money”

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