In October, the Social Security Administration announced that beneficiaries would be getting a 3.2% raise for 2024. Compared to the 8.7% cost-of-living adjustment (COLA) Social Security recipients got at the start of 2023, next year's raise might read like a disappointment.
But here's some even worse news. Depending on whether you're enrolled in Medicare and how inflation shakes out, your 2023 Social Security raise may not even benefit you at all.
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Medicare premium hikes could erode your upcoming COLA
Seniors who are enrolled in Medicare at the same time as Social Security have their Part B premiums deducted from their benefits automatically. (Most Medicare enrollees do not pay a premium for Part A.)
Right now, the standard monthly Part B premium is $164.90 a month. In 2024, it's rising to $174.70. So that alone means that seniors on both Social Security and Medicare will lose almost $10 of their COLA each month to higher Part B costs.
You might, however, get charged more than $174.70 a month if you're a higher earner. And if that happens, that surcharge has the potential to eat away at your COLA even more.
Inflation could render your 2024 COLA useless
Social Security COLAs are tied to inflation. The reason beneficiaries are getting a much smaller raise in 2024 than in 2023 is that inflation has managed to cool off over the past 12 months.
However, we don't know if inflation will come surging back in 2024. If it does, and general living costs rise to a large degree, it could basically render next year's COLA ineffective.
In fact, Social Security COLAs have historically done a poor job of helping recipients keep pace with inflation -- and next year could prove to be no exception.
It's best to have income outside of Social Security
At this point, you may be thinking: "What's the sense in raining on seniors' upcoming Social Security raise?" But there is a point, and it's to encourage pre-retirees to save for their senior years independently and not become too reliant on Social Security benefits alone.
If you're in a position where your monthly benefit is your primary or sole source of income, a COLA that doesn't stand up well to Medicare premium hikes and inflation could wreck your finances in a very big way and force you to make some difficult lifestyle decisions. But if you're able to come into retirement with a nice amount of savings to supplement your Social Security income, then a not-so-great COLA may not be so detrimental.
Let's say you're not looking at much of a bump in your Social Security income next year after Medicare and other factors are accounted for. If you have a nest egg you can withdraw from to the tune of $500 a month, you might manage to get by just fine.
All told, 2024's COLA is by no means the smallest one Social Security recipients have ever gotten. In fact, it's actually somewhat generous in the context of COLAs over the past 20 years.
But relying heavily on Social Security COLAs just isn't a good idea. So if you're not yet retired, take the opportunity to build up some savings so you don't have to sweat it if future COLAs are even less to write home about.
