Every October, the Social Security Administration (SSA) revealed its yearly Cost of Living Adjustment (COLA), modifying the monthly payments for 71 million beneficiaries to align with inflation. The expected COLA increase for the upcoming year might not match this year’s 8.7% surge, raising concerns that some elderly individuals across the U.S. could face financial strain.
The anticipated 2024 COLA increase is projected to be 3.2%, as reported by the Senior Citizens League, a champion for the elderly in the U.S. This projection stems from recent inflation metrics, like the August consumer price index data, which showed a yearly rate increase of 3.7%, partially driven by rising fuel prices.
What is the Social Security COLA and how is it calculated?
This suggests the overall inflation rate continues to outpace the expected 3.2% annual COLA forecasted by the Senior Citizens League. Despite the significant 8.7% raise this year, the largest in 40 years, numerous retirees express concerns about not keeping up financially, says Mary Johnson, a policy specialist for Social Security and Medicare at the Senior Citizens League.
Around 70% of retirees have reported that their monthly expenses are approximately 10% higher compared to last year. “COLAs aim to uphold the financial strength of senior consumers,” Johnson communicated to CBS MoneyWatch. “However, given that Social Security payouts are relatively minimal, the monetary uplift often doesn’t cover real-world price escalations throughout the year.”
Johnson further commented, “Expenses for housing, healthcare, and food remain high. Collectively, these areas can constitute 80% of most retirees’ expenses.” The discrepancy in the COLA potentially being less than actual inflation can be attributed to its calculation methodology.
Initially, the Social Security Administration utilizes an inflation gauge slightly distinct from the primary CPI used by the Federal Reserve and economists to measure price changes. The agency determines its COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Critics argue this doesn’t genuinely represent elderly Americans’ expenditure patterns.
In August, the CPI-W recorded a rise of 3.4%, a tad below the 3.7% uptick in the widely-referenced Consumer Price Index for All Urban Consumers.
Furthermore, the administration calculates its COLA by examining the percentage increase of the CPI-W in the third quarter — encompassing July to September — against the preceding year. A zero percent change yields no COLA modification.
Average Social Security Benefits
Should there be a 3.2% COLA in the coming year, the typical monthly pension for retirees would grow to $1,790, resulting in an added $57.30, as indicated by the Senior Citizens League. Yet, a considerable portion of retirees confront monthly expenses surpassing this average, with studies from the group revealing that 52% of elderly individuals incur monthly costs exceeding $2,000.
“Social Security payouts are modest, covering only about one-third of a median worker’s typical earnings,” Johnson stated, referencing insights from the Social Security’s primary actuary.
What Is the Average Social Security Benefit for Retirees?
As of July 2023, the Social Security Administration (SSA) reports that the average monthly benefit is around $1,703.98. The most you could receive from Social Security in 2023, if you retire at the current retirement age (66), is $3,627. However, this maximum benefit can be increased by delaying retirement.
The SSA offers cost of living adjustments (COLA) based on inflation to ensure beneficiaries can maintain their living standards.
Medicare Premiums Costs Are Increasing in 2024: Here’s How Much
Get ready for some changes in your Medicare premiums come 2024 that will impact your household’s economy. While Medicare Part B costs are expected to rise, there’s good news on the horizon for Medicare Part D prices. Every year, the Social Security Administration makes a full revision on the Medicare program’s expenses. Based on their findings and guided by the Social Security Act, they make adjustments to premiums and deductibles.
Let’s start with Medicare Part B and its related costs. For example, a new Alzheimer’s treatment, Leqembi, is making its debut in the market. While it’s a promising development, it means that Medicare beneficiaries will be shouldering some of the costs. The Part B premiums are projected to climb from $164.90 to approximately $174.80, marking an increase of nearly $10 per month.
Now, for the good news you need to hear: Medicare Part D is bringing some relief to your wallet. The average total monthly premium for Part D is expected to go down slightly from $56.49 in 2023 to $55.50 in 2024. This dip can be attributed to premium stabilization and an enhanced Basic Part D benefit package. This package includes vital features like capping annual out-of-pocket expenses, reducing cost-sharing for covered insulin products, and waving cost-sharing for recommended adult vaccines starting in 2024.
But wait, there’s one more thing to consider. If your income falls in a specific bracket, you might face an additional charge known as the Income-Related Monthly Adjustment Amount (IRMAA) on your Medicare premiums for both Part B and Part D plans. The extent of this impact varies depending on your income range and the standard premium. So, as 2024 approaches, be sure to keep an eye on these changes to ensure your Medicare coverage aligns with your healthcare needs and budget.
Projected Inflation Rates for the Next Few Years
Inflation forecasts are generally measured in terms of the consumer price index (CPI) or harmonised index of consumer prices (HICP) for different countries and regions. These forecasts are based on an assessment of the economic climate in individual countries and the world economy, using a combination of model-based analyses and expert judgement.
The Federal Reserve Bank of Cleveland estimates the expected rate of inflation over the next 10 years and 30 years using a model that uses Treasury yields, inflation data, inflation swaps, and survey-based measures of inflation expectations.
Deloitte presents four different scenarios for inflation in the United States for the years 2023-2025, considering several factors such as interest rates, employment rates, global trade tensions, and geopolitical events. These scenarios provide a range of possible outcomes and suggest actions that businesses can take in response www2.deloitte.com.
Statista provides a projection of the Consumer Price Index in the United States from 2010 to 2028, which can be used to infer expected inflation rates statista.com.
According to a Reuters report, the Federal Reserve Bank continues to monitor inflation rates closely and is working to return inflation to its target of 2%. However, inflation rates remain more than double that target, though they appear to be declining in several key areas of the economy reuters.com.