As inflation continues to fall, next year’s estimated cost-of-living adjustment for Social Security recipients has ticked up to 3%, according to The Senior Citizens League. The organization is now projecting the 2024 COLA will increase the average monthly retirement benefit by a little more than $53.60, bringing it to nearly $1,841. The group’s June estimate had the eventual increase pegged at 2.7% or roughly $52 per month.
If you need help planning for Social Security or maximizing your benefits, consider speaking with a financial advisor.
Inflation on the Decline
For June, the U.S. Bureau of Labor Statistics announced a 3% rate of inflation for June, down from 4% in May. It was the 12th straight decline in inflation, which peaked at a jaw-dropping rate of 9.1% in June 2022 before declining to 6.4% in January and falling below 5% in April. The current 3% rate puts inflation at just slightly above the Federal Reserve’s target of 2.5%.
Whatever the final year-end inflation number turns out to be, it’s likely to differ from the Social Security COLA increase, which is calculated based on different figures than those used by the Labor Department in figuring the official inflation rate. The Social Security Administration bases its figure on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) between the third quarter of the current year and the previous year. The Labor Department’s final 2024 inflation number uses the results from all 12 months of the similar but broader Consumer Price Index for All Urban Consumers.
If inflation continues to decline, Social Security recipients could find themselves in a similar situation to 2022, when the cost-of-living adjustment came in higher than the final annual inflation rate. While annual inflation finished the year at 6.5%, Social Security recipients received the largest-ever adjustment of 8.7%. Of course, in years when inflation rises after the third quarter, the COLA amount can end up being less than the annual inflation rate.
Whatever the final amount turns out to be, it’s likely to be relatively meager if it’s anywhere near 3%. The impact of the adjustment also can be diminished by any change in the Medicare Part B premiums, the league noted. Most beneficiaries have their Part B premiums automatically deducted from their Social Security payments, and in many years, the Part B premium hike can eat up most, or even all of the inflation adjustment, leaving retirees short of catching up with the rising cost of living.
While medical costs stayed mostly flat between May and June, according to MedicalEconomics.com, the overall cost of healthcare is projected to rise by 7%, according to estimates from PwC’s Health Research Institute. That’s an increase from the projected medical cost trend in 2022 and 2023, which was 5.5% and 6.0%, respectively.
Bottom Line
While inflation seems likely to be lower next year than this year and during 2022, the unknown factor of how increased health costs will flow through to Medicare premiums makes it difficult to expect much, if any, real gain from Social Security COLA additions.
Retirement Planning Tips
- A financial advisor can help you plan for rising – or falling – inflation in your retirement income plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Do you know how long your retirement funds will last you? Try using SmartAsset’s retirement calculator to learn more.
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