As of December 2022, the average monthly Social Security benefit for the more than 48 million retired workers was $1,825.14, equating to an annual run-rate of around $21,902. Given its pivotal role in establishing a financial foundation for America’s workforce, it is unsurprising that the program’s eagerly anticipated October announcement of the cost-of-living adjustment (COLA) is a highly significant event each year.
According to the Center on Budget and Policy Priorities, the mere existence of Social Security has significantly decreased the poverty rate among seniors aged 65 and older, dropping from an estimated 38% to 10%. When considering individuals of all ages, including children and adults below 65, the program annually lifts over 21 million people out of poverty.
What is Social Security’s COLA, and what level of adjustment can beneficiaries anticipate in 2024?
Social Security’s COLA serves as the mechanism by which America’s primary retirement program addresses the inflationary challenges faced by its beneficiaries. As the cost of a standard basket of goods and services rises, benefits are adjusted to prevent any erosion of purchasing power. COLA calculates adjustments for beneficiaries, reflecting an increase in benefits to align with inflation. It’s important to note that the term “raise” is used in quotes to signify an increase in benefits to match inflation, as opposed to a conventional salary increase from an employer that may surpass the prevailing inflation rate.
The program’s COLA is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, only data from the third quarter (July to September) of the current and preceding years are utilized in the calculation. If the average reading from the third quarter CPI-W in the current year exceeds that of the same period in the previous year, it indicates inflation, triggering a “raise” for beneficiaries.
On October 12, 2023, the Social Security Administration (SSA) disclosed that its 66 million beneficiaries, which include individuals with disabilities and survivor beneficiaries, would receive a 3.2% cost-of-living adjustment in 2024. While this represents a notable decrease from the 8.7% COLA granted in 2023, it still surpasses the 2.6% average COLA observed over the past two decades.
The typical retired worker will see a 3.2% cost-of-living adjustment, resulting in a $59 monthly increase, bringing their estimated January 2024 check to $1,907. Similarly, workers with disabilities and survivor beneficiaries can anticipate additional monthly amounts of $48 and $47, respectively, starting in January.
Retired workers are witnessing the most significant increases in their Social Security checks, but the size of these checks can vary widely depending on the beneficiary’s location.
The Social Security Administration recently released its Annual Statistical Supplement for 2023, providing a wealth of data on new benefits, withheld benefits, and detailed breakdowns of current benefit distribution by age and location. While the program’s 3.2% cost-of-living adjustment applies universally, the actual dollar increase in checks is more pronounced in specific states.
Here are the top 10 states where retired-worker Social Security checks are expected to experience the most substantial increase in 2024. The average retired worker benefit per month as of December 2022 is listed for each state, along with the anticipated average increase, factoring in a 3.2% COLA:
- Connecticut: $2,020.41 ($64.65 increase expected)
- New Jersey: $2,020.14 ($64.64 increase expected)
- Delaware: $1,998.21 ($63.94 increase expected)
- New Hampshire: $1,994.48 ($63.82 increase expected)
- Maryland: $1,960.40 ($62.73 increase expected)
- Washington: $1,933.04 ($61.86 increase expected)
Minnesota: $1,924.20 ($61.57 increase expected)
- Michigan: $1,917.84 ($61.37 increase expected)
- Massachusetts: $1,910.33 ($61.13 increase expected)
- 1Utah: $1,900.65 ($60.82 increase expected)
Why do Social Security benefits vary significantly from state to state?
If you’re curious about the nearly $200 monthly difference for retired-worker beneficiaries in Connecticut and New Jersey compared to the national average, the key lies in their earnings history. The Social Security Administration (SSA) relies on four primary factors to determine a worker’s monthly benefit:
- Work history
- Earnings history
- Full retirement age
- Claiming age
Among these factors, earnings history appears to exert the most substantial influence on Social Security benefits in the highlighted 10 states. If a worker earns more, adjusted for inflation, over the 35 years considered by the SSA, their Social Security check will be larger.
Based on data from the U.S. Bureau of Labor Statistics, as reported by Forbes Advisor, the national average annual salary is $59,248. Seventeen states, including Massachusetts ($76,600), Washington ($72,350), New Jersey ($70,890), Maryland ($69,750), Connecticut ($69,310), Minnesota ($63,640), New Hampshire ($62,550), and Delaware ($62,260), boast annual average wages surpassing the national average. Workers with consistently higher earnings throughout their career are likely to receive more substantial Social Security benefits.
Furthermore, high earners may have the ability to save more and invest for the future compared to the average worker. Building significant emergency savings and a healthy nest egg can offer them the flexibility to delay claiming Social Security. For each year a beneficiary waits to take their payout, from age 62 to 69, their monthly benefit can increase by up to 8%. Additionally, the cost of living may also play a role. States with a lower cost of living, like Michigan, can make Social Security dollars go further in retirement. The migration of retirees to more affordable states might explain why retired workers in Michigan receive Social Security checks well above the national average.