What Does the 2024 Social Security Cost-of-Living Adjustment Mean for Beneficiaries?
More than 71 million Americans receiving Social Security and Supplement Security Income (SSI) will see a 3.2% increase in their payable benefits in 2024, thanks to a cost-of-living adjustment (COLA). On average, the increase equates to $50 more in Social Security retirement benefits per month. While 3.2% is lower than the historic 8.7% increase in 2023, it is higher than the 20-year average of 2.6%.
What is a Social Security Cost-of-Living Adjustment and How is it Calculated?
The cost-of-living adjustment (COLA) is considered annually to help those who receive Social Security benefits cover increases in the costs of necessary goods and services.
The Social Security Administration (SSA) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine cost-of-living adjustments. In short, the CPI-W measures the average monthly change in the costs of goods and services, based on the spending patterns of wage earners.
The SSA then uses this information to determine how much the cost of living has risen and to set the COLA rate for a given year. What’s important to note is that the COLA doesn’t always go up. In some years, it has remained flat. This happened in 2010 and 2011 when the economy was in a deep recession.
Who Is Eligible for the Social Security Cost-of-Living Adjustment?
The 3.2% Social Security cost-of-living adjustment will automatically kick in for all eligible Social Security benefit recipients in 2024. This includes Retirement, Survivor, and Disability beneficiaries as well as Supplemental Security Income (SSI) recipients.
When Will I See the Social Security Cost-of-Living Adjustment on My Social Security Check?
Most Social Security beneficiaries will see the increase in their monthly checks starting in January 2024. SSI beneficiaries will see the increase beginning December 29, 2023.
Are There Any Risks to Higher Social Security Benefits?
While few would argue that receiving more in monthly Social Security benefits is a good thing, there are some potential financial risks involved.
First, the cost-of-living adjustment could increase the amount of taxes you pay on your Social Security earnings. For example, if you file as an individual, you pay taxes on up to 50% of your benefits when you draw between $25,000 and $34,000 a year in income. If the COLA should increase your income above the $34,000 threshold, you’ll be required to pay taxes on 85% of your benefits.
Likewise, spouses filing jointly pay taxes on up to 50% of their benefits when they draw between $32,000 and $44,000 a year in income. If the COLA should increase their income above the $44,000 threshold, they’ll be required to pay taxes on 85% of their benefits. Both examples could equate to a net drain rather than a net increase in income.
Additionally, higher Social Security benefits due to cost-of-living adjustments could put low-income beneficiaries at risk for losing access to some financial support services such as Supplemental Nutrition Assistance Program (SNAP) and rental assistance. It’s important for these individuals to understand how increased Social Security benefits could potentially impact eligibility for these programs.
How Can I Learn More About My Cost-of-Living Adjustment?
The Social Security Administration will send notices throughout December 2023. You may be able to receive information about your new benefit amount sooner by logging into the Message Center of your Social Security account at ssa.gov.
All in all, the cost-of-living adjustment should help many Americans better afford the rising cost of living. If you have questions or concerns about your Social Security benefits, visit ssa.gov or speak with your banker or wealth management professional.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.