Hey there, brace yourself for some changes in your Social Security benefits. While they’re poised for an uplift, it’s going to be a tad less than you might have enjoyed last year.
Every year, Social Security dishes out a Cost of Living Adjustment (COLA), meant to cushion you from the inflating costs we all grumble about. This fluctuating yearly hike nods at the Consumer Price Index for Urban Wage Earners and Clerical Workers (or the snazzy term, CPI-W). It essentially keeps tabs on how the prices for everyday items change, especially the ones you’d find in the shopping carts of city folks and desk workers.
Now, here’s the gist: This time around, the hike is taking a bit of a chill pill. Forget the generous 5.9% in 2022 or the jaw-dropping 8.7% boost in 2023. Those were the good times, arguably the best in decades.
Social Security COLA in 2024
Word on the street is we’re looking at something closer to 3%. Yet, with the upcoming announcement in October, everyone’s on their toes. Will it? Won’t it? Diving into specifics: if you’re hanging up those work boots and settling into the retired life, expect a cozy $55 bump, averaging your 2024 benefit to $1,882. For our power couples with both reaping the benefits, you’re looking at an increase of roughly $89 monthly, averaging about $3,061.
On the flip side, folks on disability are set to pocket an extra $44, averaging their benefit at $1,527. Our bereaved spouses can anticipate an added $51, bringing their average sum to $1,755, while those with kiddos get a more generous bump of $106, settling around an average of $3,626.
Now, when’s all this magic happening? Well, the big COLA reveal is an October staple, usually around the middle of the month. So, brew some coffee and keep an eye on that mailbox or the ‘My Social Security’ platform online. Remember, the new and improved amount makes its grand entry in December, but most will see that fresh amount reflecting in their January statements.
What factors contribute to the estimated increase in Social Security benefits for 2024?
The Social Security benefits increase for 2024, also known as the cost-of-living adjustment (COLA), is influenced by several factors:
Inflation: The most significant factor determining the COLA is inflation, specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration uses the average inflation in the third quarter (July, August, and September) to calculate the COLA for the following year. If there’s a yearly CPI increase, the Social Security Administration will raise payments by the COLA.
Medicare Premiums: Another significant factor is the cost of Medicare premiums, specifically Part B premiums. These premiums are typically deducted from Social Security benefits before they’re sent to retirees. The Medicare Trustees have projected that the standard monthly Part B premium could increase by $10 a month to $174.80 in 2024. This additional cost can offset the increase from the COLA, reducing the net increase in benefits that recipients see.
Changes in the Economy: Factors such as changes in the prices of goods and services, and fluctuations in the economy can also influence the COLA. For instance, the Federal Reserve’s actions to combat inflation can impact the COLA.
Taxes on Social Security Benefits: The COLA could increase the taxes paid on Social Security benefits, which might also affect the net increase in benefits.
General chatter suggests a 3% rise in 2024.
However, with inflation being the fickle creature it is, expect the unexpected. Here’s some food for thought: Social Security has these annual makeovers (COLAs) to keep your benefits from being nibbled away by inflation. Especially after the COVID-19 hullabaloo, with 2022 seeing a sweet 5.9% rise and 2023 an even heftier 8.7%, it’s been a protective shield for many.
But with the cooler inflation trends recently, thanks in part to some moves by the Federal Reserve, expect 2024’s hike to be a little more conservative. Got some big brains from places like Boston College and Morningstar hinting at that 3% for 2024’s COLA, but only time will tell.
Wondering how CPI-W shakes things up? This index is the puppeteer behind Social Security COLA calculations. It’s the watchdog for price changes in everyday items – think groceries, rent, threads, health needs, and even your Netflix subscription. The Social Security bigwigs weigh the CPI-W averages between the current year’s third quarter and the last year when a COLA was set. If this year’s is higher, that percentage difference is your COLA magic number. Simple, right?
What is the difference between the CPI-W and the CPI-E?
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and the Consumer Price Index for Americans 62 years of age and older (CPI-E) are both variations of the Consumer Price Index (CPI) but they focus on different segments of the population and have different uses.
The CPI-W is a measure of the change over time in the prices of a “basket of goods” that wage earners and clerical workers pay for. It is primarily used on an annual basis to reflect changes in the costs of benefits paid to Social Security beneficiaries. The CPI-W focuses on households where at least 50% of the household income comes from clerical or wage-paying jobs, and at least one of the household’s earners was employed for at least 37 weeks of the year.
On the other hand, the CPI-E focuses on changes in the cost of living for Americans aged 62 and older, whose expenses often differ from younger and non-retired workers. The CPI-E uses the same basket of goods as the CPI-W but weights them differently. For instance, those aged 62 and older often spend less on transportation but more on medical costs.