Social Security payments saw a big bump in 2022 due to high inflation. Seniors saw an 8.7% increase in payments, which is the biggest Social Security annual increase since 1981. But in 2023, the cost-of-living-adjustment (COLA) is only set to be around 3%, which can have a significant impact on those who rely on Social Security for a majority of their retirement income.
However, according to a recent survey by GOBankingRates, 25% of respondents aged 65 or older have no idea what the lower COLA means for them. Here’s how the numbers break down, and what seniors can do to prepare.
Are Retirees Prepared for a Lower COLA?
We asked Americans of all ages if they were going to be affected by the lower cost-of-living-adjustment (COLA) that Social Security is giving this year. Not surprisingly, most people under age 65 were not affected, or had no idea what the COLA was.
But of the respondents aged 65 and older, 57% of them said they would be affected by the lower COLA, and 18% said they would not be affected at all. What was surprising, though, is that 25% of all respondents aged 65 and older said they had no idea if it would affect them.
Considering the age of eligibility for Social Security payments is 62, it is interesting that a quarter of seniors who are eligible for Social Security don’t know if the COLA affects their financial status.
There may be a lack of awareness of how Social Security raises work, or simply that these retirees are not relying on Social Security income. But considering this survey also revealed that 62% of seniors aged 65 and older have less than $100,000 saved for retirement, this is cause for concern.
Whether you are collecting Social Security right now, or are preparing to apply for benefits, it’s important to understand how much Social Security actually pays and what the COLA increase will look like.
How Much Does Social Security Pay (on Average)
Social Security pays you for your average working income over a 35-year period. Well, it’s a bit more complicated than that, but it’s important to note that Social Security is designed to only replace about 40% of your working income, and should not be your only source of income in retirement.
As of July 2023, here are the average monthly checks that Americans are getting right now:
|Type of beneficiary||Average monthly benefit (dollars)|
As you can see, on average, retirees are only seeing about $1,839 per month in Social Security income. A surviving spouse receives about $1,714 in monthly benefits, and disabled workers are receiving about $1,487 in monthly Social Security benefits.
History of Social Security COLA Adjustments
The Social Security program has offered cost-of-living-adjustments (COLA) every year since 1975. Prior to 1975, pay increases were handled by legislators.
Over the past decade, with very little inflation, the COLA has been very low, with little to no pay increase for many years. Here’s a breakdown of the last 10 years of adjustments to Social Security pay:
|Year||COLA (Percentage Increase)|
As you can see, most years saw less than a 2% increase, with no adjustment in 2015. And though there was a big bump in 2021 and 2022 due to inflation, the 3% pay increase this year is high compared to most of the last decade.
This doesn’t make it easier, though, as inflation has increased in many areas far more than 3% over the last 12 months. According to the Bureau of Labor Statistics (BLS) inflation data, several expenses still have high inflation, including:
- Food: 4.9%
- Restaurants: 7.1%
- Shelter: 7.7%
- Transportation: 9%
- Medical care: 4.1%
These things continue to rise in cost year-over-year, making it more difficult for seniors to afford to live on Social Security payments.
How Much More Social Security Will You Get in 2024?
If you count on Social Security for a bulk of your retirement income, you have probably struggled to keep up with the rising costs of food, housing, and other expenses. Even with an 8.7% bump in 2022, the effects of inflation have made it harder on retirees living on a fixed income.
Unfortunately, it looks like the cost of living increase is projected to only be about 3% for 2024. This means a much smaller bump in monthly income for Social Security recipients.
Here’s how the pay increase breaks down for different types of workers:
|Category||Average 2023 monthly check||Average monthly increase||Average 2024 monthly check|
If you’re a retiree living on Social Security income, you’ll only see an estimated $55 pay bump per month. Disabled workers and surviving spouses will see even less.
This may come as a shock, as many retirees saw a $100+ pay increase per month last year when the cost-of-living-adjustments was 8.7%. And considering the cost of goods and services continues to rise, this may be a difficult adjustment for many.
Ways To Prepare for a Lower COLA Increase
Since there’s not a lot more money coming this year for Social Security recipients, what’s the best way to prepare? There are a few things you can do to help your Social Security income stretch further.
Keep Tabs on Your Spending
Budgeting is a lifesaver when living on a fixed income. Keeping track of your spending and putting together a monthly budget can help you take control of your money and help you optimize your income. Finding ways to save on monthly bills, such as negotiating or comparison shopping, can give you more cash each month, and meal planning and managing your variable expenses can give you more cushion.
Don’t Expect a Big Pay Bump
If you’re expecting another $100+ pay bump, you’re going to be in for a disappointment. Average workers are going to see just over $50 per month, or around $600 for the year, which doesn’t make much of a difference. So temper your expectations and don’t make any grand plans to spend your pay raise this year.
Draw From Other Sources of Income
If you have retirement savings or other income sources, you should continue to rely on those for a majority of your retirement income. Accounts such as IRAs, 401ks, and brokerage accounts, in addition to real estate or other investments, can help you afford to cover the increased costs of living.
Retirement is getting more expensive, but Social Security can’t keep up. And it wasn’t meant to cover your entire costs of living, so it’s important to have other income sources available to supplement your retirement spending needs.
If you’re already retired and drawing from Social Security, don’t expect a huge pay bump, as you’ll only see about a 3% increase this year. But as inflation comes down, hopefully monthly expenses become a bit more manageable.
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