Millions of retired seniors collect a monthly benefit from Social Security. And for many of them, that benefit is their only source of retirement income.
That's why it's so important to keep up to date on Social Security changes and happenings. Here are two key points current retirees should be aware of.
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1. Next year's COLA won't be as generous as 2023's
At the start of 2023, seniors on Social Security saw their monthly benefits rise 8.7%. That raise represented the largest cost-of-living adjustment (COLA) to come down the pike in decades.
But next year's COLA is shaping up to be a lot smaller, and for good reason. Inflation has been cooling steadily since peaking in mid-2022. And while that's a good thing for consumers of all ages, from a Social Security standpoint, it means that seniors need to brace for a lower COLA in 2024.
Complicating matters is that we don't know whether Medicare costs will increase in 2024, and to what extent. Seniors who are signed up for Social Security and Medicare at the same time have their Part B premiums deducted from their monthly benefits automatically. If next year's COLA is on the smaller side and Medicare goes up a lot simultaneously, Social Security recipients may not end up with much of a raise at all.
That's why now's a good time for Social Security recipients to start putting some of their extra money from this year's COLA into savings. With living costs shrinking, it may be possible for some beneficiaries to stash a small amount of money in the bank so they have a cushion in place for 2024.
2. Benefit cuts could be on the table in about a decade
Social Security is facing a major funding shortfall as baby boomers exit the workforce in droves. The program relies heavily on payroll tax revenue for its funding, but with so many older workers retiring in short order, that revenue stream is shrinking.
Social Security can tap its trust funds to keep up with scheduled benefits until that money runs out. But the program's Trustees expect that to happen in roughly a decade from now. And once there's no more cash to raid from those trust funds, benefit cuts will be a distinct possibility.
In fact, recent estimates call for about a 20% reduction in benefits, which could be downright catastrophic for those retirees who get all of their income from Social Security. So in light of that, seniors should take steps to sock away some savings in case their benefits are slashed.
In fact, those who are in a position to hold down a part-time job should consider doing so. Working may, for many seniors, be the only way to make saving a meaningful amount of money possible.
Many seniors are used to sitting back and collecting a monthly benefit from Social Security. But it's important to stay apprised of changes to the program, like the ones above, so that steps can be taken to avoid financial stress in light of them.
