Social Security recipients are on track to pocket a significantly smaller raise in 2024 because of a slowdown in inflation.
AVERAGE SOCIAL SECURITY CHECK FOR RETIRED WORKERS BASED ON A 3% COST-OF-LIVING INCREASE
If inflation rises in line with its recent trend over the next two months, recipients’ monthly checks will rise by about 3% in 2024, according to estimates from analysts and nonprofits. The estimates follow an 8.7% cost-of-living increase in 2023 as inflation soared.
For the approximately 67 million retirees and disabled people who receive Social Security benefits, annual changes to payments can make a big difference in making ends meet. Social Security for many retirees is the only source of their retirement income that’s designed to keep pace with inflation.
And while inflation cooled in June to its slowest pace in more than two years, inflation’s decline is uneven, with prices for some products and services still rising sharply.
With a cost-of-living adjustment, or COLA, of 3%, the average monthly Social Security check for retired workers would rise by about $55 to $1,892 in January from $1,837 this year.
The annual cost-of-living increase is tied to the average inflation for July, August and September, using the Labor Department’s consumer-price index for urban wage earners and clerical workers. The July data, disclosed Thursday, provides a strong clue as to what recipients might get when the Social Security Administration announces the official COLA for 2024 in October.
The 3% estimate is slightly above the 2.6% average cost-of-living adjustment over the past two decades, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, a nonprofit that advocates for strengthening Social Security and Medicare benefits.
For the government, a more modest rise in monthly Social Security checks would be welcome news after the 8.7% increase marked the largest cost-of-living adjustment to benefits in four decades.
One silver lining for retirees is the stock market’s performance so far this year. In 2022, retirees’ nest eggs were walloped by falling stock and bond markets. Over the 12 months ended June 30, average 401(k) balances for investors ages 65 to 69 have risen 5.3% to $223,100, according to Fidelity Investments, the nation’s largest 401(k) provider.
Despite the annual boost, the net increase for many retirees enrolled in Medicare Part B, which covers doctor visits and other forms of outpatient care, will be lower since those premiums are typically deducted from Social Security checks. Next year, the standard Part B premium is slated to rise by $9.90 to $174.80 a month, according to estimates Medicare’s trustees released in March.
Julie Turner, 68, said the 8.7% raise this year helped her avoid dipping into her emergency savings. A retired teacher who was widowed in 2008, she receives $1,625 each month from Social Security plus a $150 survivor benefit.
She said that after spiking last year, her major expenses have been fairly stable in recent months. The cost of eggs has come down, and the price of food for her cats has leveled off.
Turner, who lives on 60 acres in Mobridge, S.D., with her two dogs, six cats and two horses, is optimistic about making do with a smaller COLA in 2024. She said her lifestyle is relatively simple in part because multiple sclerosis prevents her from traveling much.
Among Americans age 65 and older, 40% rely on Social Security for half or more of their income, according to an AARP analysis of recent government data. About 14% of recipients in that age group depend on their benefits for 90% or more of their income, the analysis found.
The nonprofit Committee for a Responsible Federal Budget expects an increase of about 3% in 2024, with the potential for the COLA to be higher if gas prices continue to rise. Social Security officials in a March report said they expect next year’s benefit increase to be about 3.3%.
This year’s 8.7% COLA increase helped hasten the date of potential insolvency for the Social Security trust fund by a year, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. She said a 3% COLA isn’t likely to have a significant impact on the insolvency date, which Social Security’s trustees predict will occur in 2034.
Unless Congress takes action to shore up the program, beneficiaries would receive about 80% of their scheduled benefits after that point.
Retirees can start Social Security benefits any time between ages 62 and 70, with the benefit amount increased for every month of delay. Cost-of-living increases start at age 62, whether you claim benefits then or delay, and continue for as long as you live.
The rise in monthly checks from a cost-of-living adjustment causes more people to owe federal income tax on a portion of their Social Security benefits. The $25,000 income threshold for individuals, or $32,000 for couples, isn’t adjusted for inflation. The annual income figures include half of an individual’s or couple’s Social Security benefits.
In 2021, 46% of retirees paid federal income tax on a portion of their benefits, up from 8% in 1984, according to the Social Security Administration.
This article was originally published in The Wall Street Journal on July 27, 2023, and written by Greg Ip. Image courtesy of Elizabeth Frantz/Reuters.
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