Social Security Announces a 3.2% Cost-of-Living Adjustment, the Smallest Increase Since 2021
Social Security Announces a 3.2% Cost-of-Living Adjustment, the Smallest Increase Since 2021.
The U.S. Social Security Administration (SSA recently announced that the average monthly Social Security check for retired workers will rise 3.2%, or $59, to $1,906 next year. This change will take effect in January 2024 for Social Security beneficiaries and on Dec. 29, 2023, for Supplement Security Income beneficiaries. According to the SSA, nearly 70 million Americans receive Social Security benefits every month.
Social Security income accounts for about 30% of the income for people over 65, according to 2015 data released by the SSA in 2021. Of these beneficiaries, 12% of men and 15% of women rely solely on Social Security for 90% or more of their income. The annual cost-of-living adjustment, known as COLA, is designed to ensure that the purchasing power of Social Security beneficiaries isn’t reduced by inflation. COLA is calculated from the consumer price index. However, due to the timing of these calculations, the COLA doesn’t always align with the current state of inflation.
For example, in 2021, inflation was measured at 7.8% between December 2020 and December 2021. Therefore, the COLA increase of 5.9% didn’t fully compensate Social Security beneficiaries because inflation continued to rise after the COLA was announced in fall 2021. Conversely, this year’s 8.7% increase overcompensated for the 6.3% inflation in 2022, according to Alicia Munnell, an economist and director of Boston College’s Center for Retirement Research. With high inflation in recent years, Social Security beneficiaries have received substantial COLAs.
However, this won’t be the case in 2024 due to recent reductions in the inflation rate. The Federal Reserve (Fed) has targeted inflation with several rate hikes in 2023. In a September meeting, it voted to keep its current benchmarking rate steady instead of voting through a 12th rate hike. However, the Fed still intends to keep interest rates high to combat inflation, as consumer prices increased for the second month in September.