Inflation has fallen from its peak, but many Americans are still struggling with elevated prices. The 2023 Retirement Confidence Survey from independent firm Greenwald Research found that 58% of retirees worry they will need to make substantial spending cuts to compensate for inflation, and 30% lack confidence in their ability to keep up with rising prices even if they make cuts.
Fortunately, Social Security benefits will get a raise next year. That means retired workers and other beneficiaries will receive a little extra income, which should help reduce the burden imposed by inflation. Read on to learn how the raise is calculated, and to see how much the average benefit will increase.
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Social Security COLAs help protect the buying power of benefits
Social Security benefits get an annual cost-of-living adjustment (COLA) based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks consumer prices across eight major spending groups, such as housing and medical care.
Without annual COLAs, benefits would quickly lose value. For instance, $100 in October 2013 had the same buying power as $132 in October 2023, according to the U.S. Labor Department. That means a hypothetical basket of goods and services would be 32% more expensive today on average compared to an identical basket one decade ago.
Fortunately, Social Security payouts are adjusted each year to ensure the buying power of benefits remains fairly constant. The calculation is simple enough: The third-quarter CPI-W from the current year is divided by the third-quarter CPI-W from the prior year, and the percent increase (if any) becomes the COLA in the following year.
Benefits will get a 3.2% COLA in 2024
The CPI-W rose 3.2% in the third quarter of 2023, which means Social Security benefits will get a 3.2% COLA in 2024. Retirees might be disappointing after getting much larger raises in the last two years, but a 3.2% COLA is still above the 10-year average of 2.8%.
The chart below shows how the 2024 COLA will increase the average monthly benefit paid to retired workers, the spouses of retired workers, and disabled workers.
|
Type of Benefit |
Average Monthly Benefit Before 3.2% COLA |
Average Monthly Benefit After 3.2% COLA |
Increase |
|---|---|---|---|
|
Retired workers |
$1,847 |
$1,906 |
$59 |
|
Spouses |
$885 |
$913 |
$28 |
|
Disabled workers |
$1,489 |
$1,537 |
$48 |
Data source: The Social Security Administration.
As shown above, the average retiree will get an extra $59 per month in 2024, or $708 for the full year. But the key word is "average." Social Security benefits vary widely based on lifetime earnings and claiming age, which means COLAs also vary widely.
For instance, the maximum Social Security benefit is currently $4,555 per month. Any retirees who receive that will get an additional $145 per month next year, meaning their monthly payout will increase to $4,700 in 2024.
Recipients can estimate their updated benefit by following the steps below. Regarding the second and fourth steps, it might be helpful to know the standard Medicare Part B premium is $164.90 in 2023 and $174.70 in 2024.
- Determine your current monthly Social Security benefit.
- Add any Medicare premiums that were deducted.
- Multiple the sum by 1.032.
- Subtract any Medicare premiums that will be deducted next year.
- Round down to the nearest dollar.
Alternatively, the Social Security Administration will notify people of their updated benefit by mail beginning in December, but beneficiaries can also find the information online in the Message Center of their my Social Security account.
