If inflation continues to fall at the current rate, it appears that the Social Security cost of living adjustment (COLA) for 2024 will be lower than 3%, according to The Senior Citizens League.
TSCL’s projection for a much-lower COLA in 2024 compared to this year’s 8.7% increase is based on the 12-month average rate for Consumer Price Index that is used to calculate the Social Security COLA (CPI-W), which has been on the decline. The rate of inflation, as measured by the CPI-W, has fallen to 4.5% in March, according to data released this morning by the Bureau of Labor Statistics. That’s the smallest 12-month increase since the period ending Sept. 2021.
The official 2024 Social Security COLA will not be determined until October. This year’s 8.7% COLA raised the average monthly retiree benefit by about $144 to $1,800. The COLA raise was 5.9% in 2022 and 1.3% in 2021.
Although easing inflation should relieve older consumers, new survey findings from TSCL indicate that recent steep inflation has had long-lasting financial impacts on many older households, making recovery difficult.
The good news, according to TSCL Social Security and Medicare policy analyst Mary Johnson, is that 8.7% COLA increase for 2023 exceeded the actual rate of inflation in every month so far this year by an average of 2.6%. “That’s about $44.90 per month based on an average Social Security benefit of $1,694. But that so-called cushion is completely consumed by the $164.90 per month Medicare Part B premiums which is automatically deducted from Social Security benefits,” Johnson said.
Research by TSCL indicates that average benefits fell short of inflation by roughly $1,054 from January 2021 to December of 2022. Average benefits in 2023 have only recovered about $179.40 in total since the start of the year, and that’s the amount before the deduction of the Part B premium.
The financial impact of the past two years of inflation has had some far-reaching consequences, especially for modest and middle-income retirees. The Senior Citizens League’s new survey of 1,055 older participants found a sizable jump in the number reporting they have depleted a retirement account over the past 12 months, from 20% in the third quarter of 2022 to 26% in the first quarter of 2023. The survey also found that those who reported they carried debt on consumer credit cards for more than 90 days climbed to 45%—the highest level recorded by this survey despite the recent rise in interest rates.
Healthcare spending on the rise
How much do older adults spend on healthcare? The answer to that turns out to be a lot more than the COLA accounts for, Johnson said. The CPI-W index used to determine the annual COLA assumes consumers spend about 7% of their household budget on healthcare. But according to TSCL’s latest Senior Survey, 60% of survey participants say they spend more than double that amount, at least 16% of their income on healthcare.
In many years, Medicare premiums and out-of-pocket costs are among the fastest-growing costs in retirement, Johnson said. An inflation measure that does not adequately measure and accurately accounts for the portion of income spent on healthcare tends to undercount the actual rate of inflation and shortchange the Social Security COLA.
SEE ALSO:
• 2024 Social Security COLA Could Drop Below 3%
• Most Americans Not Counting on Social Security for Retirement Income
• Social Security Trust Fund Projected to be Depleted in a Decade
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
