In a surprising turn of events, Social Security recipients have a reason to celebrate. Despite the government’s announcement of a further decline in inflation during June, the forecast for next year’s Social Security increase has edged up. In June, annual inflation eased to 3%, down from May’s 4% and a significant drop from the 40-year high of 9.1% in June 2022.
This decrease was mainly attributed to a 16.7% decline in energy prices, although monthly energy costs rose by 0.6%. Food prices experienced a 5.7% increase, which, although slightly lower than May’s 6.7% rise, still contributed to overall inflation. Shelter, including rents, saw a significant jump of 7.8% over the past 12 months, although it remained below May’s 8% gain. Analyzing potential changes in Social Security due to inflation.
Impacts of Inflation Decline and COLA Increase on Social Security Analyzing Potential Changes and Medicare Concerns
Typically, a decrease in inflation is considered positive as it helps individuals regain their purchasing power. However, Social Security recipients, accustomed to witnessing a decline in their potential cost-of-living adjustment (COLA) due to slower inflation, received an unexpected surprise. According to a forecast by The Senior Citizens League, a nonprofit seniors group, the COLA for 2024 is estimated to be 3%. While this is significantly lower than the record-breaking 8.7% COLA in 2023, it surpasses last month’s estimate of a 2.7% increase for 2024.
A Decline in Inflation and Increased COLA Bring Joy to Social Security Recipients, but Johnson Sounds a Note of Caution, Highlighting the Potential for Further Changes. She further explained that there are still three months’ worth of data to consider before the official announcement of the COLA in October, emphasizing the potential for changes in the estimate. The COLA calculation relies on the average inflation figures for the months of July, August, and September, which are then compared to the corresponding figures from the previous year. The percentage difference between the two determines the COLA amount.
In addition, the final impact on Social Security recipients remains uncertain until the Medicare Part B premiums are disclosed. These premiums are automatically deducted from the majority of beneficiaries’ Social Security benefits.
According to the March projections by Medicare Trustees, monthly Part B premiums were expected to rise to $174.80 in 2024 from $164.90 this year. However, Johnson cautioned that this is an estimate and does not account for any unforeseen additional costs that may arise after the estimate is released. One such potential significant cost is Medicare’s coverage for a new Alzheimer’s drug, lecanemab, known by the brand name Leqembi, which is anticipated to cost $26,000 per year without insurance.
Seniors continue to face the lingering impact of inflation from 2021 and 2022
The purpose of annual COLAs is to safeguard Social Security beneficiaries against the erosion of their purchasing power caused by inflation. Unfortunately, the COLA adjustments have failed to keep pace, leading to an unfortunate outcome for seniors. According to the Census Bureau, seniors were the only demographic group that experienced an increase in poverty levels between 2020 and 2021.
Although inflation rates have been relatively lower this year compared to the significant 8.7% increase in COLA, seniors have been unable to recover from the losses they suffered during the peak inflation years of 2021 and 2022. The extent of inflation experienced in 2021 and 2022 had a severe impact, causing the average Social Security benefit to fall behind by $1,054. As a result, 53% of retirees harbor doubts about their ability to recover financially, particularly since household expenses rose more than the amount provided by their COLAs.
The repercussions of falling behind in the face of inflation have given rise to the “unretirement” phenomenon, where retired individuals opt to return to work. A survey conducted by Paychex revealed that 55% of retirees who reentered the workforce did so out of necessity for additional income. Furthermore, one in six retirees is currently contemplating the idea of returning to work.
Decoding the Calculation: Understanding the Methodology Behind COLA Determination
The calculation of COLA (Cost-of-Living Adjustment) is determined by the Social Security Administration (SSA) annually, relying on the average annual increases in the consumer price index for urban wage earners and clerical workers (CPI-W) from July through September. Although CPI-W aligns closely with the broader CPI (Consumer Price Index) published by the Labor Department each month, there are slight differences. In the previous month, while the annual CPI showed a 3% increase, CPI-W experienced a 2.3% rise.
To provide an ongoing projection of the potential COLA for the following year, The Senior Citizens League utilizes the most recent inflation data available.
Quantifying the Reach: Assessing the Number of Americans Eligible for the COLA Increase
A staggering 70 million Americans currently receive benefits from programs administered by the Social Security Administration (SSA), with retired workers and their dependents constituting 76.9% of the total benefits paid in 2022. As of December 31, nearly 9 out of 10 individuals aged 65 and older were Social Security beneficiaries. Among this group, approximately 12% of men and 15% of women rely on Social Security for 90% or more of their income.
According to the SSA, as of May, the average monthly payment for Social Security beneficiaries amounted to $1,701.62. If a 3% COLA were implemented, it would result in an additional approximately $51 per month. The eagerly awaited announcement for the next Social Security COLA will take place in October, with its implementation slated to commence in January 2024.