With the new year getting underway, your 2024 Social Security checks will look a little different. They should be higher as a result of the Cost of Living Adjustment seniors received this year.
Social Security cost of living adjustments (COLAs) happen in most but not all years. Unfortunately, you may be disappointed this year because your benefits increased by just 3.2%. That's a lot smaller than the 8.7% benefits increase last year, and also quite a bit smaller than the 5.9% raise the year prior.
It may seem like a bummer to get a smaller benefits bump, but there are actually a few reasons you shouldn't be disappointed in how much extra you're getting. Here's what they are.
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Your COLA is still pretty generous historically
A 3.2% COLA may seem really small compared with 5.9% or 8.7%, especially if you only retired in the past couple of years and you've gotten used to these big benefit increases.
But if you look at the big picture, 3.2% is actually pretty generous by historical standards. From 2012 all the way through 2020, there wasn't a single year when the COLA was 3% or higher. And in several years seniors saw no raise at all. And since 1995, there were just eight years when the COLA was 3% or above (and three of those years were 2021, 2022, and 2023).
So while a look at the past two years may make it seem like this year's cost of living adjustment isn't worth much, the bigger picture shows it is still a generous benefits increase compared to what most longtime retirees are used to in the past.
Good news, a lower COLA means inflation is slowing
There's an even more important reason why you should absolutely not be disappointed by the fact you got a smaller Social Security raise this year. A smaller raise is actually a good thing.
That may seem strange to hear. But remember, your COLA isn't like a typical wage increase. Instead, it is a benefits bump-up that is calculated to help ensure you don't lose buying power due to inflation eroding the value of your benefits.
The COLA is calculated by looking at year-over-year price increases on a basket of goods and services. So a bigger benefits bump means that prices went up a lot over the course of the year due to high levels of inflation.
The record-high price increases resulting from the COVID-19 pandemic are the reasons why recent COLAs have been so big. So the fact that this year's raise is smaller means that inflation is slowing down compared to how it has trended in the post-pandemic era.
Lower inflation is way better for seniors, because while Social Security is designed to keep pace with raising prices due to the COLA, the savings and investment accounts retirees rely on do not come with automatic increases. Since retirees need to have a conservative portfolio to avoid taking too many risks with money they'll need soon, it is very likely that they won't earn the returns needed to keep pace with very high inflation.
A lower raise, which means a lower inflation level, is much better for those who have to pay for things out of savings and investment accounts that lose ground with surging prices. So retirees should be thankful this year's raise is smaller than the last two, and should hope for an even lower COLA next time around.
