In 2022, inflation wreaked havoc on consumers, leading the Federal Reserve to take action by hiking up interest rates in an effort to cool the economy. And the Fed's efforts seem to have worked. Inflation levels moderated in 2023, resulting in much-needed relief for cash-strapped consumers.
Meanwhile, in early 2023, Social Security recipients saw their benefits rise 8.7% in conjunction with the largest cost-of-living adjustment (COLA) to come down the pike in decades. Last year's COLA far surpassed the 5.9% COLA beneficiaries got in 2022 -- and that was considered huge at the time.
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Now it's been clear for a while that cooling inflation was apt to result in a much smaller COLA for 2024. And for months on end, seniors have been wondering what their upcoming COLA would look while economic experts have been trying to narrow down a number.
Today, however, we have our answer thanks to the release of September's Consumer Price Index. Social Security COLAs are based on third-quarter data from a subset of that index -- the Consumer Price Index for Urban Wage Earners and Clerical Workers. And based on that data, the Social Security Administration was able to put out an official COLA announcement.
Next year's COLA will be 3.2%
In early 2024, seniors on Social Security will see their benefits rise by 3.2%. Clearly, that's a far cry from the raise they received at the start of the current year. But let's also give that raise some context.
While it's not as robust as 8.7%, it's worth noting that in recent years, we've seen COLAs that have been much smaller. Since 2008, in fact, seniors have had three years with no COLA at all. And in 2021, Social Security recipients only got a 1.3% boost. So by comparison, 3.2% doesn't seem so terrible.
Medicare will be the deciding factor
A 3.2% COLA could still do a fair amount of good for Social Security beneficiaries -- that is, if a giant Medicare Part B hike doesn't ruin things. Seniors who are enrolled in Medicare and Social Security at the same time have their Part B premiums deducted from their benefits automatically. But a significant rise in the cost of Part B could eat away at next year's COLA.
Worse yet, Medicare Part B costs are expected to rise in 2024 because of added costs the program is expected to incur. By contrast, in 2023, the cost of Medicare Part B actually decreased, allowing Social Security recipients to enjoy their COLA in full. So after accounting for a rise in Part B costs, next year's Social Security raise may not end up being so much to write home about.
There is, however, a silver lining. Social Security COLAs are directly tied to inflation. And the fact that inflation is cooling is apt to provide seniors with a world of relief. So while Social Security benefits may not increase to such a notable degree, seniors who rely on the program may find that they're still able to make ends meet in 2024.
