Social Security’s cost-of-living adjustment set at 3.2% — less than half of the current year’s increase

According to experts, the Social Security Administration has announced that the cost-of-living adjustment for 2024 will be 3.2%, significantly lower than the 8.7% increase received by seniors and other beneficiaries this year. However, considering that inflation has yet to reach pre-pandemic levels, there is concern that the smaller adjustment may put seniors and other recipients at risk of experiencing a decline in their financial stability.

The average retirement benefit will increase by about $50 a month, beginning in January, the Social Security Administration said on Thursday. That will boost the typical monthly payment to $1,907 from this year’s $1,858, the agency said.

According to the Senior Citizens League, next year’s cost-of-living adjustment (COLA) is expected to be lower compared to the current year. However, it still exceeds the historical average of 2.6% for annual adjustments over the past twenty years. Despite this, many seniors are expressing concerns about falling behind as the annual adjustment fails to match their actual spending.

Mary Johnson, Senior Citizens League’s Social Security and Medicare policy analyst, expressed concern about the current situation, stating, “According to our surveys, household budgets have increased by more than the COLA, which is worrying people today. Inflation is still present among us.”

U.S. inflation cooled in September, rising 3.7% on an annual basis. That’s lower than last year’s peak of 9.1% inflation in June 2022, but still higher than the 2% goal sought by the Federal Reserve.

Martha Shedden, from the National Association of Registered Social Security Analysts, expressed her mixed feelings about the COLA adjustment. She acknowledged that it is a positive development, but found it disappointing because retirees are still facing high prices that have not decreased. Shedden believed that the COLA does not accurately mirror the real-life challenges faced by retirees.

Johnson pointed out that despite the annual COLA, certain seniors are struggling to keep up with expenses. One of the contributing factors is that the adjustment might not accurately reflect their actual spending. The Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine the COLA, which primarily focuses on the spending habits of working Americans.

According to Johnson’s observations, the CPI-W assumes that workers allocate roughly 7% of their income towards health care expenses. However, our surveys have indicated that older adults actually spend a higher percentage, ranging from 12% to 16%, and in some cases even up to 24%, on health care.

Medicare premiums

Another important concern is the effect of yearly Medicare premiums on Social Security benefits. This is due to the fact that Part B expenses of the healthcare program are deducted from retirees’ monthly Social Security benefits before they are disbursed.

In March, Medicare Trustees forecast Part B monthly premiums would increase 6% to $174.80. That’s about a $10 increase, which means Social Security recipients should see a net boost to their monthly checks after that’s subtracted from the average benefit increase of $50, Shedden noted. 

According to Sheeden, health care costs are a significant portion of retirees’ expenses, surpassing those of the majority of individuals. This is viewed as a positive aspect.

Still, the caveat is that Medicare will announce its premiums in November, and the final amount could change, especially as the program earlier this year said it would cover the new Alzheimer’s drug, Leqembi, which could cost $26,000 annually without insurance and which could increase the program’s costs. 

Poverty rising among older Americans

U.S. Census data reveals that despite significant adjustments over the past two years, with a 5.9% COLA in 2022 and an 8.7% increase this year, a greater number of seniors are experiencing poverty. The agency’s findings indicate that the proportion of seniors living in poverty escalated from 1 in 10 in 2021 to 1 in 7 last year.

Poverty could spike in coming years if the Social Security isn’t stabilized by 2033, when its trust fund is forecast to be depleted, which would result in a benefits cut of about 20% to 25%. 

According to a statement by the AARP, although retirees can find some relief in the announced COLA, they still require assurance from lawmakers regarding the development of a program to stabilize the system.

In a statement, AARP CEO Jo Ann Jenkins emphasized the importance of bipartisan cooperation in Congress to maintain the strength of Social Security and ensure a reliable long-term solution for both current and future retirees. Jenkins highlighted that American workers and retirees work diligently to earn their Social Security benefits, and it is only just for them to receive the rightful financial support they deserve.

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