The Social Security Administration has announced that the cost-of-living adjustment (COLA) for Social Security will increase by 3.2% in 2024, following a significant rise of 8.7% in 2023.
In 2023, Social Security recipients experienced the highest COLA increase in over 40 years, attributed to the escalating inflation. Over the last two decades, the average COLA increase has been 2.6%, according to the Senior Citizens League, a pro-senior think tank.
Beneficiaries of Social Security will be pleased with this year's COLA, as it will assist them in managing the rising costs. Unlike other forms of retirement income such as private savings and pensions, Social Security is adjusted for inflation and helps maintain its value over time.
It is important to note that COLA is not considered a raise, but rather a means to help Social Security beneficiaries keep up with inflationary pressures. As inflation was lower in the current year compared to the previous one, the inflation-adjustment for COLA will be lower as well.
The consumer-price index for urban wage earners and clerical workers (CPI-W) is the index used to determine the annual COLA. This index places greater emphasis on costs related to transportation, food, apparel, and other expenses typically incurred by non-retirees residing in urban areas.
However, there is another consumer price index called CPI-E that focuses specifically on elderly spending. The CPI-E takes into account healthcare, housing, and other goods and services primarily used by retirees. Some lawmakers have proposed switching to this index for calculating Social Security's COLA in order to enhance the payout for retirees.
Despite the significant COLA increases of 8.7% and 5.9% in the past two years, there have been certain drawbacks related to taxes and other benefits.
Overall, the upcoming 3.2% increase in the cost-of-living adjustment is promising news for Social Security beneficiaries, providing them with some relief from the impact of rising living expenses.
The Impact of Higher Social Security Benefits on Older Adults
Overall, the adjustments made to Social Security benefits, though aimed at addressing inflation, have inadvertently created various challenges for older adults. The impact includes potential reductions in assistance, increased tax liabilities, and a growing sense of financial uncertainty for retirees. Urgent attention must be given to these issues in order to ensure the financial well-being of older adults.