The fact that inflation has been cooling is no doubt a good thing for consumers. Since mid-2021, many people have been struggling with higher living costs and have had to result to credit card debt just to stay afloat.
In fact, collective U.S. credit card balances topped the $1 trillion mark during the second quarter of 2023. And it's fair to assume that inflation played a big role in that.
But in July, annual inflation was measured at just 3.2%, according to that month's Consumer Price Index. And while expenses such as groceries are still elevated, there's finally some relief in sight.
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But cooling inflation might also have some seniors on Social Security worried about their upcoming cost-of-living adjustment, or COLA. In 2023, Social Security recipients saw their monthly benefits increase by 8.7%.
It's too soon to determine what next year's COLA will look like. But it's fair to estimate an increase in the 3% range based on data that's available so far.
Clearly, that's a far cry from 8.7%. And so it's easy to see why some seniors may be worried. But in reality, cooling inflation is a good thing for everyone -- even if it leads to a smaller Social Security raise in 2024.
It's not just about the COLA
Seniors on Social Security tend to fixate on upcoming COLAs. And at a time when every dollar counts, that's understandable. But what today's beneficiaries should realize is that a slowdown on the inflation front might do more good things for their finances than a slightly larger Social Security raise.
Social Security COLAs have long failed to adequately keep up with inflation. And a big issue with them is that they're based on data that tends to apply more so to a broad consumer base and less so to retirees specifically. Because of this, there's often a disconnect between the raise Social Security recipients receive and the extent to which senior living costs have increased.
But all told, seniors might end up in a better place in early 2024 than in 2023 if inflation continues to shrink, despite being in line for a much lower COLA to start off the year. Or, they might land in an equivalent spot. But a smaller COLA in 2024 won't necessarily spell doom and gloom for seniors if it comes in conjunction with relief at the pump, supermarket, and doctor's office.
It's still a good idea to conserve cash
Some seniors may be in a good financial position right now given that living costs are lower than they were a year ago. It certainly wouldn't be a bad idea to sock away some extra money in anticipation of a much smaller COLA in 2024. What that does is buy seniors a bit of a cushion.
One wild card factor that's apt to impacts seniors' finances in 2024 is Medicare costs. In 2023, the cost of Medicare Part B went down when it normally rises.
But seniors could be in for an increase in 2024 that could eat away at whatever COLA it is they receive. So now would certainly be a good time to bank some extra cash when feasible, just in case Medicare ends up throwing enrollees an unwanted curveball.
