Seniors on Social Security got a really nice raise at the start of 2023 -- an 8.7% cost-of-living adjustment (COLA) that was the largest increase to arrive in years. And the year before, Social Security benefits got a 5.9% lift -- another notable increase.
But next year's COLA, unfortunately, isn't going to be as generous. Social Security recipients are only going to see their benefits rise 3.2% in 2024.
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Furthermore, in 2023, the cost of Medicare Part B went down, so it didn't impact seniors' Social Security COLA at all. In 2024, the cost of Medicare Part B is increasing by about $10 a month, so any raise Social Security beneficiaries receive will be reduced by that sum.
If you're on Social Security, you may be disappointed in your 2024 COLA. But you should know that a 3.2% raise is by no means the lowest one to come down the pike.
Previous COLAs have been considerably smaller
It's hard to wrap your head around a 3.2% raise at a time when your most recent raise was 8.7%. But it's important to realize that a 3.2% COLA actually isn't all that stingy.
During the period of 1975 to 1985, a 3.2% COLA would've seemed low because inflation was high back then, and Social Security raises were more generous in order to account for that. The latter part of the 1980s also saw a string of larger COLAs to account for inflation.
But since the year 2000, there have been few years that saw a COLA of 3.2% or higher. There were also three years during that time when seniors on Social Security got no COLA at all and one year (2017) when benefits rose an almost negligible 0.3%. So, when we take 2024's COLA in context, it's not so bad.
There may be a better way to calculate COLAs
Right now, Social Security COLAs are calculated based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The problem, though, is that the CPI-W measures expenses that don't necessarily reflect well on the costs seniors bear.
As such, advocates have suggested basing future Social Security COLAs on a senior-specific index. By tracking more relevant costs and adjusting COLAs accordingly, seniors on Social Security might start to gain buying power from COLAs rather than consistently lose it (something that's been happening over the past 20 years or so).
As an example, the CPI-W is influenced heavily by gas prices. But seniors, generally speaking, may not spend as much money on gas as workers. So it would be better to have an index that's more centered on the costs seniors spend more of their money on, like healthcare.
It's natural to want as high of a Social Security COLA as possible at a time when living costs are still elevated. But it's important to realize that Social Security COLAs are pegged directly to inflation, and under the current system, there isn't much leeway to adjust them. In time, that might change, though. A shift to a senior-specific index could result in significantly higher COLAs down the line.
