Last month, the Social Security Administration announced the changes the program will face heading into 2024 -- including the new cost-of-living adjustment (COLA).
The COLA, specifically, will directly affect the size of your monthly payments. The larger the adjustment, the more you can expect to receive next year. While there's good news about the 2024 COLA, there's also some sneaky bad news that could overshadow it. Here's what you need to know.
The good news: Inflation is shrinking
In 2024, beneficiaries can expect to receive a 3.2% COLA, which will amount to an extra $59 per month for the average retiree, according to the Social Security Administration.
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Some people may be disappointed in the 3.2% COLA, as it's substantially smaller than last year's whopping 8.7% raise. However, because these adjustments are designed to help benefits keep up with inflation, a smaller COLA means inflation hasn't surged as much this year compared to last year.
Ultimately, lower inflation will likely have more of an impact on retirees than a larger COLA, so this is still good news for older adults -- especially those who are stretched for cash.
The bad news: Benefits are still losing buying power
Despite the fact that beneficiaries are receiving COLAs most years, Social Security has still struggled to keep up with rising inflation. In fact, benefits have lost around 40% of their buying power since 2000, according to a 2022 report from The Senior Citizens League.
In other words, while COLAs are designed to help benefits maintain their buying power, they haven't successfully done that in recent years. Next year's smaller COLA may signal that inflation is slowing down, but it's still becoming more difficult for retirees to survive on Social Security.
If this trend keeps up, Social Security could be even less reliable in the future. For those who are depending heavily on their benefits to make ends meet, this loss of buying power could make retirement less affordable.
What can you do to prepare?
Next year's COLA and the issues plaguing Social Security may be out of your control, but you can take steps to reduce your dependence on your benefits.
Perhaps the best thing you can do, if you haven't yet retired, is to increase your savings. Even if you can't afford to invest much, saving even a little more can go a long way.
For instance, say you can afford to contribute an extra $100 per month to your retirement fund. If your investments are earning a modest 7% average annual return, those savings could add up to around $32,000 after 15 years.
While that may not be enough to retire on, considering the average retired worker collects around $22,000 per year from Social Security, those savings would amount to more than one year's worth of benefits.
If you're already retired
It's harder to save when you're retired and living on a fixed income. While it's not always possible to increase your savings in this situation, if you're serious about strengthening your retirement fund, it could be worthwhile considering going back to work temporarily.
When you have extra income from a job, that can not only reduce how much you're relying on Social Security right now, but it could also help you stash a bit more in your retirement account. It may not be the most appealing option, but working even a year or two longer could go a long way toward creating a more financially secure retirement.
Starting in 2024, beneficiaries can expect to receive slightly larger checks thanks to the new COLA. Over the long term, though, benefits may not go as far as they used to. By starting to save more or working a few extra years, you can reduce your dependence on Social Security and rest easier knowing your retirement is better protected.
