Social Security COLA set at 3.2 percent for 2024

Social Security recipients will get a 3.2 percent increase in their monthly payments next year, the Social Security Administration announced Oct. 12.

The 2024 cost-of-living adjustment  marks a big drop from this year’s increase of 8.7 percent, reflecting a considerable cool down of inflation over the past 12 months.

Starting in January, the average monthly Social Security retirement benefit will rise by $59, from approximately $1,848 to $1,907, according to the SSA. The average disability benefit will increase from $1,489 to $1,537.

“Retirees can rest a little easier at night knowing they will soon receive an increase in their Social Security checks to help them keep up with rising prices,” AARP Chief Executive Officer Jo Ann Jenkins said in a statement following the announcement. “We know older Americans are still feeling the sting when they buy groceries and gas, making every dollar important.”

The COLA will be applied to veterans’ benefits and retirement pay as well as Social Security payments.

Consumer prices drive COLA
The SSA bases the COLA on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers for the third quarter from one year to the next. The CPI-W is a subset of the main consumer price index, which provides the headline number in reporting on inflation.

The 2024 adjustment represents the difference between the average CPI-W index for July, August and September of 2022 and the average for those months in 2023. Shortly before the COLA reveal, the U.S. Bureau of Labor Statistics announced that the CPI-W rose at a 3.6 percent rate in September, following increases of 2.6 percent and 3.4 percent in July and August, respectively.

Social Security benefits have been annually adjusted for inflation since 1975. The previous two COLAs — 5.9 percent in 2022 and 8.7 percent in 2023 — were the largest since the early 1980s and increased the average monthly retirement benefit by $92 and $146, respectively, in those years.

Inflation, Medicare impact
While sharply lower than in the last two years, the 2024 adjustment could still buttress retirees’ buying power if inflation rises at a slower clip than the COLA. The Federal Reserve’s Survey of Professional Forecasters projects that the main Consumer Price Index will decline gradually from the current 3.6 percent to 2.7 percent by mid-2024.

“A lower COLA just means that Social Security beneficiaries have faced less inflation since their last COLA, which is good for household finances,” said Emerson Sprick, senior economic analyst at the Bipartisan Policy Center.

However, those gains will be offset in part by an increase in monthly premiums for Medicare Part B, the portion of Medicare that covers outpatient services such as doctor visits. For most Medicare enrollees, Part B premiums are deducted directly from their Social Security payments, so the rate hike will eat into the COLA.

The standard Part B premium will be $174.80 a month in 2024, up 6 percent from the current rate of $164.90, the Centers for Medicare and Medicaid Services announced Oct. 12. Most Medicare beneficiaries pay the standard rate, but higher earners (individual taxpayers with incomes above $103,000 and couples filing jointly who make more than $206,000) are subject to additional charges.

While the COLA “is great news for beneficiaries,” the Medicare premium hike “will absorb a disproportionate share” of the increase, said Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities.

That could put additional strain on Social Security recipients’ budgets. “Seniors and people with disabilities tend to spend a greater share of their incomes on health care, and medical prices are rising faster than overall inflation,” Romig said.

New payroll tax threshold
Social Security is largely funded by a payroll tax of 12.4 percent on eligible wages, with employers and employees paying equal 6.2 percent shares. (Self-employed people pay the full amount.) The tax is applied to earnings up to a certain threshold, which will increase next year from $160,200 to $168,600.

Those contributions go toward monthly payments for today’s Social Security beneficiaries, with any excess funneled into two trust funds — one for retirement and survivor benefits, the other for disability benefits. The funds had a surplus of more than $2.8 trillion at the end of 2022, but Social Security’s trustees estimate this reserve will be exhausted by 2034 unless Congress acts to stabilize the system’s finances.

Absent such action, benefits would continue to be paid out from incoming payroll taxes, but they would be about 20 percent lower, the trustees project in their most recent annual report.

“AARP is urging Congress to work in a bipartisan way to keep Social Security strong and to provide American workers and retirees with a long-term solution that both current and future retirees can count on,” Jenkins said. “Americans work hard to earn their Social Security, and it’s only fair for them to get the money they deserve.”