Those on Social Security will receive a much smaller increase of 3.2% in their benefits checks next year as a cost-of-living adjustment, or COLA, after government data showed inflation steadied in September.
Annual inflation was 3.7% in September, matching August’s increase, but down from a 40-year high of 9.1% in June 2022. The so-called “core” inflation rate dropped from 4.3% to 4.1% without the volatile food and energy sectors.
It’s true that inflation is about double the Federal Reserve’s 2% target, but it’s mostly lower, which means Social Security beneficiaries will see a lower COLA.
How much will the Social Security COLA be in 2024?
In 2024, the COLA will increase by 3.2%, about one-third of the four-decade high of 8.7% in 2023. The latest retirement survey conducted by The Senior Citizens League, a nonprofit seniors group, found that even though Social Security benefits have increased more than the 2.6% average over the past 20 years, older adults are pessimistic about their finances and the possibility of benefit cuts.
Five-six percent of survey respondents are concerned that retirement income won’t cover the costs of essentials in the coming months, according to Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League. Benefit cuts to Social Security are even more concerning.”
What is the problem with COLAs?
The COLA falls short for a number of reasons, including:
Inflation: According to the League’s survey, 68% of older adults say their household expenses remain at least 10% higher than one year ago. The situation has persisted for the past year, they said.
Almost six out of ten respondents rank benefit cuts as their top concern. In the past year, a significant number of older households with lower incomes have lost access to some safety net programs, according to Johnson.
It was a double whammy for some. COLAs of 5.9% in 2022 and 8.7% in 2023 boosted incomes just enough to make some ineligible for low-income assistance programs such as SNAP and rental assistance, and federal emergency COVID-19 assistance ended earlier this year for SNAP and Medicaid.
In the upcoming 2024 tax season, Johnson expects more Social Security beneficiaries to owe federal income taxes on their Social Security benefits for the first time because of the highest COLA in 40 years.
If a person’s income exceeds certain thresholds, up to 85% of their Social Security benefits may be considered taxable income. The income thresholds for taxing Social Security benefits have never been adjusted for inflation, unlike other parts of the federal tax code. Due to COLAs, both the number of retirees subject to taxation of benefits and the portion of benefits that may be taxed increase as Social Security income increases.