The United States Social Security system is one of the most important programs in the nation, providing payments, benefits and assistance to millions of Americans at various stages of their lives. It ensures economic security, particularly during retirement, disability, or in the event of a family member’s death. Now, there’s one element you need to know about: the cost-of-living adjustment (COLA).
It comprises several programs, such as retirement benefits, disability benefits, Medicare, Supplemental Security Income (SSI), Social Security Credits, Social Security Disability Insurance (SSDI), and more. They are all affected by the cost-of-living adjustment (COLA) which helps maintain the purchasing power of these benefits in the face of inflation.
Social Security COLA: How Much Will It Increase Your Payments?
While the precise 2024 COLA figures for Social Security payments will only be available after the Labor Department publishes September inflation data on October 12th, experts are making informed predictions. It’s anticipated that a 3% COLA will be applied to Social Security benefits in 2024. Although this figure is an estimate, it is subject to the trajectory of inflation in the months leading up to the adjustment.
In practical terms, a 3% COLA would result in varying increases across the major beneficiary groups:
- Retired workers: An average monthly payout of $1,893.74, an additional $55.16
- Spouses: An average monthly payout of $918.06, an extra $26.74
- Survivors: An average monthly payout of $1,497.70, a boost of $43.62
- Disabled workers: An average monthly payout of $1,389.92, an increase of $40.48
It’s important to acknowledge that these figures might be perceived as less substantial compared to the larger COLA of the previous year. However, there is a silver lining to this situation. The smaller COLA is indicative of a cooling inflation trend, which has a positive impact on economic stability and market performance. As the economy continues to strengthen, retirement-account balances could experience further growth, benefiting those who rely on Social Security.
Insight into COLA and its Impact on Social Security Benefits
An integral aspect of Social Security benefits is the annual cost-of-living adjustment (COLA). Designed to counteract the effects of inflation, COLA aim to enable beneficiaries to keep up with rising expenses. These adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks price changes over time as perceived by hourly wage earners and office workers. The Social Security Administration (SSA) compares the third-quarter CPI-W of the current year to that of the previous year, the percentage increase is used to determine the subsequent year’s COLA.
In some instances, the COLA can be significant, such as the 8.7% increase in 2023, resulting from a substantial year-over-year rise in the third-quarter CPI-W of 2022. Despite its impact on beneficiaries’ finances, this substantial increase also had repercussions in the broader economy, affecting markets and savings.
What Was the 2023 COLA Increase for Social Security Benefits?
The 2023 COLA increase for Social Security benefits is 8.7 percent. Here are the key details related to the 2023 COLA increase:
- The 8.7 percent COLA increase will begin with benefits payable to over 65 million Social Security beneficiaries in January 2023.
- Increased payments to over 7 million SSI (Supplemental Security Income) beneficiaries
- The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $160,200.
- The earnings limit for workers who are younger than “full” retirement age will increase to $21,240.
- The earnings limit for people reaching their “full” retirement age in 2023 will increase to $56,520.
- There is no limit on earnings for workers who are “full” retirement age or older for the entire year.
Thinking About Retire Early? This Is What Happens to Your Payments
If you retire too early, there can be implications for your Social Security payments. The system is intended to provide benefits to people with ages ranging from 62 and 67, depending on your birth year. However, you can start receiving Social Security benefits as early as age 62, but there are some important factors to consider.
If you choose to start receiving Social Security benefits before reaching your full retirement age (FRA), your monthly payments will be reduced. The reduction is typically around 6.67% for each year you claim benefits before your FRA. For example, if your full retirement age is 67 and you start receiving benefits at age 62, your monthly payments will be about 30% lower than they would be if you waited until your FRA.
And this is particularly relevant: the reduction in your monthly benefits due to early retirement is permanent so, when you choose this option, there’s no way back. Once your benefit amount is set, it remains at that reduced level for the rest of your life, except for annual COLA adjustments. If you’re married, your decision to retire early can also affect your spouse’s benefits. If you claim benefits early, it could reduce the survivor benefits your spouse is entitled to receive in the event of your death.
Is There a $16,728 Yearly Bonus for Social Security Beneficiaries?
Are you familiar with the concept of the Social Security $16,728 annual bonus? Well, let’s clarify that there isn’t actually a direct “bonus” retirees can claim from Social Security. The SSA calculates your benefit amount using a specific formula based on your lifetime earnings, and no extra payments are set to be disbursed as if they were some kind of stimulus check.
Nevertheless, there are strategies you can employ to effectively create your own financial boost by optimizing the benefits you’re entitled to receive. One of the most straightforward ways to increase your Social Security benefits is to delay claiming them. You can start receiving benefits as early as age 62, but your monthly payments will be higher if you wait until your full retirement age, which typically ranges from 66 to 67, depending on your birth year. If you can wait even longer, your benefits will continue to grow until you reach age 70.
Social Security benefits are calculated based on your highest 35 years of earnings. If you haven’t worked for a full 35 years, consider working longer to replace lower-earning years with higher ones. Earning more money throughout your career can lead to higher Social Security benefits. This means striving for promotions, raises, and seeking higher-paying job opportunities.
SSDI and SSI To Get an Increment Due to the COLA Adjustment
Beneficiaries under the Supplemental Security Income (SSI) program could potentially expect to receive revised payments within that particular month. However, individuals who are beneficiaries of alternative Social Security initiatives, such as Social Security Disability Insurance (SSDI), may not witness the adjustment until the onset of January.
For instance, the 2023 COLA increased the average monthly SSDI benefit for a disabled worker by $119, from $1,364 to $1,483. This number is just an example, because every case is particular, and every allotment is based on the individual’s situation.
SSDI benefits are provided to individuals who are largely incapable of engaging in substantial gainful activity (SGA) due to their disabilities. The SSA establishes an income limit, commonly referred to as the “substantial gainful activity” (SGA) cap, which is a crucial factor for SSDI recipients.
This adjustment not only considers the rising cost of living but also seeks to strike a balance between providing support for disabled individuals and encouraging their participation in the workforce to the extent of their abilities. As such, COLA has a multifaceted impact on the SSDI program, safeguarding the financial well-being of disabled individuals while allowing them to pursue gainful employment where possible.