The projections for next year’s Social Security cost-of-living-adjustment have experienced another shift, influenced by the ongoing cooling of inflation. The latest data released in June indicates a slight increase to 3%, offering a more optimistic outlook for beneficiaries compared to last month’s estimate of 2.7% by The Senior Citizens League, an advocacy group.
However, it’s crucial to note that these numbers are subject to change as time progresses, and the official 2024 COLA won’t be disclosed until October. This waiting period allows for recalculations based on third-quarter inflation levels. Adding to the uncertainty, Medicare-related expenses are expected to rise, posing a potential risk for some Social Security beneficiaries who may not witness any growth in their 2024 benefits. It remains essential to keep a close eye on these developments as they unfold.
Understanding the COLA Calculation for Social Security Benefits
Every January, the Social Security Administration adjusts benefits for approximately 67 million recipients of Social Security and Supplemental Security Income (SSI) to account for inflation. This increase, known as the COLA (Cost-of-Living Adjustment), is determined based on a specific consumer price index subset, representing the cost of goods and services for a particular demographic. To calculate the COLA, the average inflation level during July, August, and September is considered.
The government then compares this third-quarter average to the inflation average of the previous year. The percentage difference between the two becomes the final COLA amount. In essence, a higher year-over-year inflation rate results in a higher COLA.
However, regardless of whether the official 2024 COLA is above or below the current estimate, beneficiaries should not expect a boost on the same scale as this year. The 2023 COLA set a historic record at 8.7%, representing the largest increase in over 40 years due to surging inflation. As a result, the average monthly Social Security payment rose by $140, as reported by The Senior Citizens League.
Despite this unusually substantial COLA for 2023, a survey conducted by the advocacy group revealed that it still fell short for over half of the respondents in coping with rising household expenses. According to the group’s findings, beneficiaries experienced a $185 increase in monthly expenses between 2022 and 2023, meaning their enhanced Social Security checks were not enough to cover the full extent of their rising costs.
The 2024 COLA and Potential Impact on Medicare Part B
As per the recent report from the U.S. Bureau of Labor Statistics, inflation has risen by 3% in June compared to the same period last year. If the 2024 COLA indeed reaches 3% in October, the average monthly Social Security benefit of $1,787 would see an increase of approximately $53.60.
However, alongside this anticipated COLA rise, Medicare Part B premiums, which are automatically deducted from Social Security payments, are also expected to increase due to new costs. Medicare Part B assists in covering medical expenses such as outpatient care that are not included in the free health insurance (Part A) provided to most Americans when they reach 65 years of age.
The determination of premiums is based on a recipient’s modified adjusted gross income. Projections suggest that the new Medicare costs could lead to an additional monthly increase ranging from $5 to nearly $15 for all beneficiaries. Consequently, the 2024 premium might reach just under $180 a month, compared to this year’s premium of $164.90.
The Senior Citizens League warns that in many instances, the Part B premium increase can consume most, if not all, of the COLA, leaving little surplus to cover other rising expenses. It’s important to note that while the Centers for Medicare and Medicaid Services report around 65.7 million people enrolled in Medicare as of March, the number of Social Security claimants is closer to 67 million. Thus, not all Social Security beneficiaries are subject to monthly Part B premiums.
Significance of COLA and Inflation for Retirees
While inflation is showing signs of slowing down, certain expenses relevant to retirees are not decreasing; in fact, costs for dental care and auto insurance are rising even as other goods and services become more affordable. This situation poses a significant challenge for individuals living on fixed incomes, particularly those with limited savings or resources. There is a risk that they may struggle to cover essential expenses like rent, electric bills, food, or expensive prescriptions.
The advocacy group suggests that a $15 monthly increase in Medicare Part B premiums would likely be manageable for most Medicare beneficiaries, considering their current COLA projection. However, if inflation cools down further, resulting in a COLA below 3%, there’s a potential risk that the 2024 monthly deduction for Part B could surpass the increase received by some Social Security beneficiaries, especially those with the lowest benefits.
This situation highlights the delicate balance retirees must navigate, as they rely on their Social Security benefits and face rising expenses in crucial areas like healthcare and insurance. As inflation remains a significant factor, the financial stability of retirees depends on how well these expenses align with future COLA adjustments.