In 2024, America’s 67 million Social Security recipients will technically get a raise, but the boost to their benefits will be so marginal that the gain will feel more like a loss.
Legislation from 1973 provides for annual cost-of-living adjustments (COLAs) designed to preserve the purchasing power of Social Security benefits as inflation drives up prices over time. The faster prices rise, the more the SSA increases the yearly COLA.
However, the agency’s method for calculating the adjustments has advocates worried that the coming year’s increase will leave many recipients struggling to do more with less.
In 2023, the SSA authorized a hefty 8.7% COLA, the largest increase in 40 years, to offset an equally historic rise in inflation. The inflation rate fell toward normal levels in the ensuing year — but that does not mean prices fell, too. They just rose less quickly.
The result is what The Senior Citizens League (TSCL) predicts will be a 3.2% COLA in 2024, a nearly two-thirds reduction over 2023. The SSA will announce its final decision in mid-October.
In May, when the TSCL predicted a 3.1% increase, the nonpartisan organization released a report concluding that, despite annual COLAs, Social Security benefits have lost 36% of their purchasing power since 2000.
The SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine COLAs, but that index excludes crucial retirement expenses like Medicare Part B and D premiums. The result is that every $100 in benefits from 2000 buys just $64 worth of goods and services today.
Also, the SSA calculates COLAs based solely on third-quarter price increases. Inflation slowed considerably this July, August and September, but the assessment doesn’t account for the previous months, when prices rose at a much faster clip. The result is that boomers could experience a 50% decrease in their benefits’ real-world purchasing power in 2024.
If Social Security is just one element of a healthy retirement income portfolio — as it should be — revising your budget to account for a slimmed-down COLA should be enough to prepare for 2024.
But if you’re one of the 37% of men and 42% of women who the SSA says rely on Social Security for more than 50% of their income — or 12% of men and 15% of women who count on it for at least 90% — then you have tougher choices to make.
“In 2024, retirees face the daunting chore of managing their financial affairs against the backdrop of drastically reduced COLAs,” said Hassan Sanders, who works with Social Security recipients to afford supplemental insurance coverage as the founder of Diabetic Insurance Solutions. “Navigating this ever-changing terrain requires a critical shift for retirees, one that prioritizes income stream diversity.”
For many, “prioritizing income stream diversity” means putting off retirement — or at least working part time — until they build sufficient savings to complement their benefits.
“Relying only on Social Security alone is not viable,” Sanders said.
The SSA currently allows recipients to earn up to $21,240 without a penalty before they reach full retirement age. For those in the year they will reach full retirement age, the limit is $56,520. There’s never an income test once you reach full retirement age.
Sanders pointed out that many seniors miss out on other anti-poverty programs because they incorrectly assume collecting Social Security makes them ineligible to double up. For example, Social Security recipients also can participate in SNAP (food stamps), provided their retirement benefits don’t push them over the supplemental nutrition program’s income threshold. The same goes for Medicaid and other valuable anti-poverty programs.
If you have the means, professional financial assistance is a worthwhile investment.
“Speaking with a financial planner who specializes in retirement planning can be beneficial in developing a personalized approach that tackles the unique issues posed by the post-2024 Social Security scenario,” Sanders said.
But if you’re struggling to adapt to next year’s COLA, you might not be able to afford it. In that case, contact nonprofits and other organizations that offer free help to those who need it, including:
- The Foundation For Financial Planning
- Financial Planning Association (FPA) Pro Bono Program
- Certified Financial Planner (CFP) Board
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