Social Security retirees are getting a cost-of-living adjustment (COLA) in 2024 that will result in larger benefit checks. Most people refer to this benefits increase as a raise.
COLAs are in place to protect retirees against the effect of inflation. When a consumer price index shows the cost of goods and services are going up, benefits are increased so seniors don't lose buying power.
However, while seniors getting Social Security benefits will see more money in their checks next year, the raise could come as a disappointment. Here's why.
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The 2024 COLA is the smallest in years
There's a simple reason why the 2024 COLA could be a big disappointment. It is the smallest benefit increase in several years. Beneficiaries can expect to see their Social Security checks increase by 3.2% in 2024. That's a very small increase when you consider that benefits increased by 8.7% in 2023 and 5.9% in 2022.
With next year's 3.2% COLA, a retiree with a $1,600-per-month benefit in 2023 would see an increase of just $51.20 per month in 2024. By comparison, a retiree with a $1,600 benefits check who got an 8.7% raise in 2022 would have seen their payments increase by $139.20 a month in 2023. That's a huge difference that may come as a shock to seniors expecting an increase comparable to last year.
Not only will the COLA be smaller in 2024, but Medicare premiums are also increasing by $9.80 per month in 2024 for those who pay the standard price for Medicare Part B. Since Medicare premiums usually come directly out of Social Security checks, this premium increase will further reduce the amount of extra income retirees get from the COLA.
Should you be disappointed by the small raise?
While a 3.2% raise may seem disappointing when you compare it to the benefit increases in 2022 and 2023, the reality is that those COLAs were actually the outliers. In fact, here's how much the Social Security raises were in the years prior:
- January 2016 -- 0%
- January 2017 -- 0.3%
- January 2018 -- 2%
- January 2019 -- 2.8%
- January 2020 -- 1.6%
- January 2021 -- 1.3%
The reason for such a big benefits increase in 2022 and 2023 was the surge in inflation caused by stimulus spending and supply chain disruptions resulting from COVID-19. Prices increased at the highest level in decades. Since the COLA is calculated based on a price index comparing year-over-year costs of goods and services, it's not surprising that the Social Security raises in 2022 and 2023 were the highest in decades.
So, while it may feel disappointing to get such a small benefits bump next year, the reality is that seniors are actually better off with a smaller COLA. When benefits don't go up as much, it's because the prices of goods and services aren't rising as rapidly. That's better for seniors who also rely on their retirement savings to provide a portion of their income since the buying power of their savings declines rapidly when there's a surge in inflation.
The bottom line is, retirees should be realistic about how big their COLA is going to be in 2024, so they don't expect a bigger increase than what's coming -- and they should be happy when they see that smaller raise rather than disappointed, because it means that price increases are finally slowing.
