Retirees receiving Social Security are getting a cost-of-living adjustment (COLA) in 2024. This means more money will be coming in their checks each month. Specifically, retirees will get a 3.2% bump in their retirement benefits.
This COLA is often referred to as a raise, but it’s not that simple. Here’s why.
Image source: Getty Images.
Inflation drives the price of goods and services higher over time, which is why Congress passed legislation in 1972 to give Social Security benefits an annual COLA.
Each year, the Consumer Price Index for Wage Earners and Clerical Workers (CPI-W) is used to measure how much prices have gone up. If the third-quarter CPI-W reading registers a positive year-over-year change, then benefits will increase by that percentage difference the following year.
In other words, the COLA is intended to help Social Security payouts keep pace with inflation, not raise the buying power of your benefits from year to year.
There’s another big problem with calling the COLA a raise: In many years, retirees actually see their buying power decline despite the fact their benefits increase on paper.
You may have noticed the consumer price index used in COLA calculations is for “wage earners and clerical workers,” but retirees are typically neither wage earners nor clerical workers. They have different spending patterns than those individuals. As a result, the CPI-W often underestimates how much inflation actually impacts seniors.
The Senior Citizens League estimates Social Security benefits have effectively lost 40% of their buying power since 2000 as a result of the COLA not working as it should — another reminder the COLA isn’t much of a “raise” at all.
Finally, there’s one last important issue. Retirees aren’t even going to keep the full amount of their COLA because Medicare costs are increasing. The standard monthly premium for those enrolled in Part B is going to be $9.80 more than the standard premium in 2023. And the annual Medicare deductible for Part B beneficiaries is increasing $14 compared to the 2023 deductible.
Since Medicare Part B premiums are usually withdrawn from Social Security checks, the COLA seniors get is going to be reduced by $9.80. And those who use healthcare services will have to pay more out of pocket for them before their Medicare coverage kicks in. Increases in healthcare spending are one big cause for rising Medicare premiums, and healthcare expenditures often tend to increase faster than inflation in other areas of the economy.
For all of these reasons, it’s important retirees stick to their budgets, make sure they’re using Social Security benefits wisely, and maintain a safe withdrawal rate from their savings so their money lasts as long as they need it to.
The $21,756 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $21,756 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.
—
Blog powered by G6
Disclaimer! A guest author has made this post. G6 has not checked the post. its content and attachments and under no circumstances will G6 be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever (including, without limitation, any direct or indirect damages for loss of profits, business interruption or loss of information) resulting or arising directly or indirectly from your use of or inability to use this website or any websites linked to it, or from your reliance on the information and material on this website, even if the G6 has been advised of the possibility of such damages in advance.
For any inquiries, please contact [email protected]
