Social Security Cost of Living Adjustment (COLA) Announced for 2024
This year’s announcement of 2024 Social Security benefits and the cost-of-living adjustment (COLA) may have been underwhelming for recipients compared to the past two years. The Social Security Administration announced this week that benefits will get an 3.2% increase. On average, this will be at least a $50 “raise” per month for people in the New Year. The announcement also included a $9.80/m increase for Medicare Part B premiums.
How does this COLA compare to the past? As financial planners, we project an average increase for Social Security of 1.5% each year. Over the last 10 years it has averaged 2.75% (last year’s 10-year average was 2.24% for context). This year’s increase is more on par with historical increases, but it may feel quite small compared to the past two years’ increases (5.9% and 8.7% respectively). Inflation is still higher than the Fed would like and Social Security’s purchasing power continues to dwindle as everyday expenses continue to rise. Food prices are up 3.7% and medical costs slightly decreased by 1.4% over the past year. With the collective whole of everyday living rising every year, people on a fixed income will need to continue relying on their savings more and more to fill these gaps.
The bigger questions continue to be around the future solvency of Social Security, and strategies if one is not yet collecting. Here are a few additional thoughts:
If you’re not collecting, it still “pays to wait” because there are still credits (annual increases) to the tune of ~8%, no matter what the COLA is for 2024. One can collect as early as age 62 and as late as age 70, ranging from 70% of your full retirement age benefit to as high as 132% if you wait until age 70. Hence, each year you wait is roughly an 8% increase, regardless of the COLA. The two are different, but often confused for each other.
We are often asked if our country’s debt will mean Social Security will sooner or later fold. Social Security is funded by payroll taxes. So, while solvency continues to be the long-term question, it goes back to the number of workers paying into the system vs. the number of retirees collecting. Solvency is more about demographics than our country’s debt. There are only 2.8 workers for each beneficiary right now. For context it was 8.6 to 1 in 1955, when some of those starting to collect today were born.
The Board of Trustees have been talking about insolvency for years, which some say will be 2034. More pessimistic projections show it could be sooner especially if there are changes to payroll taxes and higher than projected unemployment numbers. The reality is our government will most likely need to make amendments to the full retirement age and taxes with a greater impact on future generations.
Social Security decisions are incredibly important and can often be complicated. If you’re already collecting, the news this week is a good one as you’ll continue to see an increase to your benefits starting in 2024. If you’re not yet collecting, we’d be more than happy to be a resource for you before you make that significant decision.
Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
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