The Social Security Administration (SSA) just revealed days ago the cost of living adjustment (COLA) for 2024 in October. The COLA increase was set to 3.2%, which could potentially raise the average monthly benefit of approximately $1,787 by around $53.
Last October, Social Security proudly announced an 8.7 percent payment amounts rise for retirees, marking the highest rate in four decades. In July, the Federal Open Market Committee (FOMC) made a significant move by increasing the interest rate by 0.25 basis points, reaching 5.5 percent.
Social Security Announcement: The monthly COLA increase to your payment
This action marked the highest level in 22 years and the 11th consecutive hike over the past 12 U.S. Federal Reserve System policy meetings since March 2022. Throughout this period, the FOMC has consistently aimed to curb inflation and maintain it at 2 percent.
The Senior Citizens League (TSCL), a prominent nonpartisan senior group, projected a 3 percent estimate in July, indicating an increase from the previous estimate of 2.7 percent in June. This calculation accounts for a slight uptick in the average inflation rate and considers the Consumer Price Index for Urban Wage Earners and Clerical Workers, an index utilized to determine the COLA, which only rose by 2.3 percent year over year.
The upcoming three months will hold significant importance, as they will determine the ultimate rate, coinciding with the announcement of Medicare Part B premiums.
The Committee for Responsible Federal Budget, a public policy organization focused on evaluating federal budget and fiscal matters, projected its own forecast indicating that the Social Security COLA could rise between 2.6 percent and 3.3 percent in 2024. The upper range of this estimate assumes a decrease in inflation. The subsequent figures present the average monthly Social Security benefits, using data from the SSA, and include projected averages.
Social Security COLA increase projections – How much more will you receive
Retired Workers:
- Average Monthly Benefit: $1,837.29
- Average Monthly Benefit with 3 Percent COLA: $1,892.41
Children of Retired Workers:
- Average Monthly Benefit: $859.79
- Average Monthly Benefit with 3 Percent COLA: $885.58
Spouses of Retired Workers:
- Average Monthly Benefit: $893.01
- Average Monthly Benefit with 3 Percent COLA: $919.80
Nondisabled Widow(er)s:
- Average Monthly Benefit: $1,713.36
- Average Monthly Benefit with 3 Percent COLA: $1,764.76
Disabled Widow(er)s:
- Average Monthly Benefit: $894.78
- Average Monthly Benefit with 3 Percent COLA: $921.62
Survivor Benefits:
- Average Monthly Benefit: $1,451.85
- Average Monthly Benefit with 3 Percent COLA: $1,495.41
Disabled Workers:
- Average Monthly Benefit: $1,486.42
- Average Monthly Benefit with 3 Percent COLA: $1,531.01
Spouses of Disabled Workers:
- Average Monthly Benefit: $407.63
- Average Monthly Benefit with 3 Percent COLA: $419.86
Is Delaying Retirement a Good Financial Strategy?
Waiting until the full retirement age in the United States offers a range of significant benefits for individuals considering starting to enjoy the pleasures of their golden years. The full retirement age varies depending on the year of your birth, but it generally ranges from 65 to 67 years old.
By delaying your retirement, you can potentially receive a higher monthly benefit from Social Security. This can make a substantial difference in your financial stability during your retirement years, as the increase in benefits is designed to account for the longer period you’re expected to receive them.
Also, waiting for the full retirement age allows you more time to accumulate additional savings, which contribute to your retirement accounts and investments: that could grow significantly over time.
How Does the 2024 COLA Increase Affect Me?
If we look ahead to the potential 3 percent increase in the COLA between 2023 and 2024, it becomes evident that this adjustment will have a direct impact on individuals receiving Social Security benefits. In essence, if this increase is realized, it means that the payments for those on Social Security benefits will go up by a corresponding 3.0 percent.
Let’s consider an example to better comprehend the implications of this COLA rise. Imagine you are currently receiving $20,000 in Social Security benefits in the year 2023. If the COLA does increase by 3 percent, your benefit amount for the calendar year 2024 would see a rise to $20,600.
While this 3 percent increase is a positive development, it’s important to note that it is significantly smaller than the surge many claimants encountered at the outset of 2023. This serves as a reminder that while there is still growth, the rate of increase has eased considerably compared to the previous period.
How does the Medicare Part B premium affect Social Security benefits?
The Medicare Part B premium can directly affect Social Security benefits in several ways:
Automatic Deduction: If you are enrolled in both Social Security and Medicare Part B, the Social Security Administration automatically deducts your Part B premium from your monthly Social Security benefit. The standard Part B premium for 2023 is $164.90 per month.
Income-Related Adjustments: Medicare Part B premiums are based on your modified adjusted gross income (MAGI) – total adjusted gross income plus tax-exempt interest. If your MAGI is above certain thresholds (for 2023, $97,000 for an individual taxpayer or $194,000 for a married couple filing jointly), you will pay a higher Part B premium. The premiums can rise to a maximum of $560.50 per month if your MAGI exceeds $500,000 for an individual or $750,000 for a couple.
Higher-Income Beneficiary: If you are a higher-income beneficiary, you will pay a larger percentage of the total cost of Part B based on the income you report to the IRS. You will pay monthly Part B premiums equal to 35%, 50%, 65%, 80%, or 85% of the total cost, depending on what you report to the IRS.
The “hold harmless” rule prevents most Social Security recipients from seeing their benefit payment decrease if Medicare rates increase. However, this rule only applies to people who pay the standard Part B premium and have it deducted from their Social Security benefit. If you pay a higher premium, you are not covered by this provision.
Medicare Part D Premiums: If you have Medicare Part D (prescription-drug coverage), your premiums for this coverage also rise with higher incomes. These premiums can be deducted from your Social Security payments as well.
The following is a list of Social Security COLAs over the past five years:
According to the historical increases of the last 5 years (you can check more years at ssa.gov) these are the percentage increases they have been making
- 2018: 2.8%
- 2019: 1.6%
- 2020: 1.3%
- 2021: 5.9%
- 2022: 8.7%
Is the Social Security COLA increase enough to keep up with inflation? In recent years, the Social Security COLA has averaged a 2.1% annual gain, while the overall CPI has risen by an average of 2.2% over the past 20 years. The COLA lags inflation when prices are rising, as occurred in 2022, but it also lags when inflation is moderating. Over the up-and-down course of an inflationary period, the COLA tracks changes in prices fairly well.
However, there are some challenges. For one, the COLA is based on the average prices of a basket of consumer goods, and this may not reflect the actual expenses of Social Security recipients. For example, Medicare Part B premiums tend to rise faster than inflation, resulting in a net loss of buying power for retirees.
Moreover, the threshold for taxing Social Security benefits is not adjusted for inflation, meaning that a high COLA may increase one’s tax burden. A study by the Senior Citizen’s League found that “COLAs have increased Social Security benefits by a total of 64 percent, yet typical senior expenses through March 2022 grew by more than double that rate — 130 percent”.
With this in mind, we can say that while the Social Security COLA does help to offset the impact of inflation, it may not be sufficient to keep up with the actual cost increases faced by beneficiaries, especially considering factors like rising healthcare costs. Still, it’s a crucial feature of Social Security that helps protect the purchasing power of beneficiaries over time.
Benefits of Delaying Your Retirement for a Better Future
When it comes to securing your financial well-being during retirement, time is a powerful ally. Commencing your retirement savings early and postponing the age at which you begin receiving Social Security benefits can significantly impact your retirement income. In an era where advances in healthcare and healthier lifestyles have prolonged the average American’s retirement years, the need to ensure that investments can sustain an individual for 25 to 30 years or more has become imperative.
Statistically, American men at age 65 can anticipate approximately 20 additional years of life, while women can expect nearly 22 more years. Notably, half of the population is likely to exceed these averages, with approximately 30% of men and 40% of women projected to reach the age of 90 or beyond.
Recent research from the National Bureau of Economic Research illustrates that extending one’s working years by just three to six months can augment retirement income, akin to increasing retirement contributions by up to 1% over a 30-year employment span.
Delaying benefits until after your full retirement age (FRA) is financially rewarding since it accrues credits that amplify your benefits. For every year you delay beyond your FRA, you gain an 8% increase in benefits, up to age 70. However, it is essential to bear in mind that these credits cease at age 70. Waiting beyond that point will not further augment your benefits and may cause you to forego payments.