It might not be the preferred news for seniors, but confronting reality is crucial. The alleviation of inflation is undeniably positive. The exorbitant living expenses that plagued consumers throughout much of 2022 were simply unsustainable. While the abatement of inflation offers respite to Americans across all age groups, it presents a complex situation for seniors relying on Social Security.
This is primarily due to the direct correlation between Social Security cost-of-living adjustments (COLA) and inflation rates. In the month of July, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the benchmark for calculating annual COLA, exhibited a 2.6% increase on a yearly basis. In a broader context, the general Consumer Price Index indicated an annual inflation rate of 3.2%.
The Social Security payments are about to increase
Taking these statistics into account, the nonpartisan Senior Citizens League projects that the COLA for Social Security in 2024 will stand at 3%. This is a considerable contrast to the 8.7% COLA awarded to Social Security recipients at the commencement of 2023.
While a reduced COLA decided by the Social Security Administration might be disheartening for those receiving Social Security benefits, it’s essential to acknowledge that the upcoming raise in 2024 will not come close to matching the 2023 increase. This realization allows seniors to save some additional funds, creating a modest financial cushion for the approaching year.
Significance of July’s CPI-W Data Social Security COLA are determined based on the third-quarter data from the CPI-W. Therefore, the readings from July, August, and September collectively decide the magnitude of the raise that Social Security beneficiaries can anticipate the following year. The positive aspect is that a 3% COLA in 2024 would amplify the average monthly Social Security benefit of $1,789 by $53.70.
On the downside, potential increases in Medicare premiums could erode the impact of the 2024 COLA. This might lead to seniors experiencing a considerably smaller raise overall. In 2023, the cost of Medicare Part B actually decreased after years of escalation. However, it’s anticipated that Part B expenses will rise in 2024.
Furthermore, seniors concurrently enrolled in both Social Security and Medicare have their monthly premiums automatically deducted from their Social Security benefits. Thus, any escalation in Medicare costs would directly diminish the effect of an impending COLA.
Undoubtedly, it’s worth noting that diminishing inflation is indeed beneficial for seniors and the broader economy. Unfortunately, even with the abatement of inflation, a significant 79% of seniors report that their monthly budgets for essential expenses have increased compared to a year ago.
When will the actual COLA increment announced by the SSA?
That being said, some seniors on Social Security might find themselves in a position to set aside extra funds for the remainder of 2023, thanks to a moderate decline in specific expenditure categories. Given the projections for next year’s COLA, this would be a prudent course of action.
The official announcement of the 2024 COLA by the SSA is slated for October. Between now and then, the estimated 3% figure might undergo adjustments. Nevertheless, the key takeaway is that a substantially lower COLA is on the horizon for 2024 when compared to 2023, necessitating proactive preparation among seniors.
COLA will impact SSI and SSDI benefits as well
The COLA increase does indeed impact Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) payments. Let’s remember that, in 2023, the SSDI benefits augmented by $119, from $1,364 to $1,483. For SSI recipients, the maximum federal payment increased from $841 to $914 for an individual recipient.
SSDI benefits are based on your work history and the amount you’ve contributed to the Social Security system through payroll taxes. The SSA uses a formula that takes into account your average lifetime earnings, adjusting for inflation. Your monthly SSDI benefit is calculated using a complex formula, but the higher your past earnings, the higher your benefit is likely to be, up to a maximum limit set by the SSA.
On the other hand, SSI benefits are need-based, not tied to your work history. The amount you receive depends on your income, assets, and living arrangements. The federal government sets a basic monthly benefit rate for SSI, but it can be reduced if you have other sources of income or support.