At the start of 2023, seniors on Social Security had a very big change to celebrate -- the largest cost-of-living adjustment, or COLA, to come down the pike in decades. Benefits rose 8.7% to kick off 2023, and that increase has no doubt helped many seniors gain some much-needed buying power after struggling immensely with inflation in 2023.
But 2024's Social Security COLA is shaping up to be a lot smaller than 2023's -- and that's something seniors need to gear up for.
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Don't expect anything close to 8.7% in 2024
Social Security COLAs are based on inflation -- specifically, third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In March, the CPI-W increased just 5% on an annual basis. If it continues on the path it's been on (a steady decline from 2022), seniors may end up sorely disappointed in their Social Security COLA next year.
In fact, the nonpartisan Senior Citizens League recently told CBS MoneyWatch that, based on recent inflation data, it's looking like 2024's COLA will come in at under 3%. And it could potentially fall to under 2%, depending on what inflation levels look like later on this year.
On the one hand, a lower COLA may not be such a negative thing, because it would be an indication that inflation is cooling. That alone could spell a world of financial relief for seniors (not to mention working Americans as well).
But after enjoying an 8.7% raise in 2023, seniors aren't likely to take the news of a 2% or 3% COLA all that well. And it's important that Social Security recipients know to anticipate a smaller increase in their benefits in the coming year.
Save now if you can
Many seniors who get the bulk of their retirement income from Social Security can barely scrape by, and that holds true even when COLAs are fairly large. But if you happen to be doing well enough financially right now, it pays to take the opportunity to sock away some extra money in case your 2024 COLA ends up being much stingier than anticipated.
Unfortunately, many of the essential expenses that seniors need to pay for are still up quite a bit. Grocery costs, for example, were up 8.4% annually as of March. So that leaves Social Security beneficiaries with limited wiggle room to conserve funds.
Even if you can't boost your savings in 2023, you can take a look at your budget and work through some changes to account for a lower Social Security raise in the coming year. This year's 8.7% COLA really was unusually high, so next year's wasn't likely to match it in the first place. But to go from a boost of 8.7% to 3% or under is certainly a blow, so the sooner Social Security recipients know what they're in for, the better they can plan.
It's also worth noting that Medicare Part B premiums decreased in 2023, allowing seniors to get more out of their Social Security COLA. We don't know what Medicare costs will look like in 2024, but if they rise in conjunction with a smaller COLA, many seniors could get hurt financially.
