Inflation, an economic phenomenon that causes the prices of goods and services to constantly rise, has a significant impact on Social Security benefits. As prices rise over time, the real value of Social Security payments tends to decrease, which directly affects the beneficiaries, mostly elderly and retired people.
The latest data from the Survey of Professional Forecasters indicates that the median forecast for inflation in 2024 stands at 2.5% based on the Consumer Price Index (CPI), and 2.4% using the Personal Consumption Expenditures (PCE) measure. These projections align closely with the findings of The Wall Street Journal survey conducted on September 13, 2023. The Social Security Administration (SSA) uses the COLA index to help beneficiaries deal with inflation.
Inflation Erodes Social Security Beneficiaries Purchase Power: What the SSA Is Doing about It
The inflation rate in the United States experienced a consecutive increase for the second month in a row, surging to 3.7% in August from the previous month’s 3.2%. This notable uptick exceeded the market’s expectations, which had projected a more modest increase of 3.6%.
This upward trend in inflation bears significant implications, particularly for Social Security payments. The SSA routinely adjusts benefits through the Cost-of-Living Adjustment (COLA) to ensure they keep pace with rising living expenses. In light of the recent surge in inflation, it raises questions about how the SSA will address this challenge and continue to provide adequate support to retirees and beneficiaries.
The Social Security COLA to Increase in 2024
Forecasts predict a 3.2% COLA for 2024, translating to a mere increase of $57.30 on the average monthly retiree benefit of $1,790. A stark contrast to the current year’s rise of $146. The final numbers will be announced on October 12, upon the release of September’s inflation data.
The repercussions of the 2023 COLA might see beneficiaries entering higher tax brackets. If your combined income surpasses certain thresholds, you’ll be liable to pay taxes on portions of your Social Security benefits. Notably, these thresholds haven’t evolved since 1984. So, as benefits increment, more elderly individuals face taxes on their Social Security income.
Soaring Medicare Premiums: Will You Pay More?
In the upcoming year of 2024, Medicare Advantage (MA) plan subscribers can expect a modest increase in their monthly premiums. According to projections, the average monthly premium for these private insurance alternatives to traditional Medicare will rise by 64 cents, climbing from $17.86 per month in the current year to $18.50 in 2024. However, reassuring news from the Centers for Medicare & Medicaid Services (CMS) offers solace to the majority of enrollees, as nearly 73 percent will not experience any uptick in their monthly charges for their existing plans.
It’s worth noting that the actual monthly expenses for beneficiaries may fluctuate based on the specific plan they choose and their geographic location. CMS anticipates a continued surge in enrollment for Advantage plans, estimating an increase from 31.6 million in the present year to 33.8 million in 2024, which would encompass approximately half of all Medicare beneficiaries.
These premium projections for Medicare Advantage plans, also known as Part C, precede the commencement of the Medicare open enrollment period on October 15. During this window, which extends until December 7, the program’s nearly 66 million enrollees have the opportunity to review their coverage options and make any necessary adjustments that will come into effect in January 2024.
Regarding Medicare Part D prescription drug coverage, CMS had previously announced a decrease in the average monthly premium by an estimated 1.8 percent in 2024, dropping from $56.49 in the current year to $55.50 in the following year. The actual premiums for these plans will continue to vary based on geographical location and the specific plan selected, with most Medicare Advantage plans including prescription drug coverage as part of their offerings.
As for the premiums and deductibles for Medicare Part A, covering hospital care, and Part B, encompassing doctor visits and other outpatient services, CMS has yet to finalize the figures for 2024.
Remember that most Medicare beneficiaries are exempt from paying a Part A premium, having contributed sufficiently to Medicare taxes during their working years. However, all Medicare enrollees are obligated to pay Part B premiums, which are automatically deducted from the Social Security benefits of those enrolled in retirement payments.
Finally, members of Medicare Advantage plans are subject to any premiums imposed by their chosen plan, while original Medicare beneficiaries who opt for supplemental coverage, often referred to as Medigap, will also incur premiums for these policies.
How to Protect Your Social Security Savings from Inflation
As inflation continues to rise every year -some rates will be smaller, and some will be bigger-, many individuals who are approaching retirement age are becoming increasingly concerned about whether their retirement savings will be sufficient to cover their future cost of living.
The Federal Reserve typically considers a 2% inflation rate as acceptable for maintaining a stable and healthy economy. At this rate, the value of a dollar saved today will diminish to approximately 98 cents in the next year, and even less in subsequent years.
To offset this erosion of purchasing power, it becomes imperative for retirement savings to grow at an annual rate of at least 2% to preserve one’s ability to maintain their desired standard of living in the future, assuming that inflation remains at the 2% mark.
However, when inflation surpasses this threshold, as it has done in recent times, the purchasing power of savings diminishes even more rapidly. Given the uncertainty surrounding future inflation rates, it becomes predominant to incorporate a safety cushion into one’s savings plan.
Always keep in mind that Social Security retirement payments are intended to replace only a part of the income you had when you worked, so you should also consider supplementing with an additional income. Some beneficiaries, for example, invest in “bricks and mortar”, that is, they buy an apartment or small secondary housing that they can rent to obtain an additional payment.
Real estate investment is safer than putting your money in the stock market, because that requires more expertise in the field, or having a very good stockbroker who manages to multiply your savings. And yet, nothing is guaranteed forever, and recent history confirms this.