Retirees will receive just a 3.2% annual cost-of-living adjustment (COLA) in 2024, per the Social Security Administration (SSA). Indeed, the SSA announced Thursday that Social Security recipients’ monthly payments will increase by $59 starting in January to an estimated average of $1,907.
The deceleration in COLA is partially a reflection of the Federal Reserve’s successful battle against inflation this year. Inflation is currently trending at 3.7%, per today’s Consumer Price Index (CPI) report for September. This is a notable decrease from 2022 when inflation increased an average of 6.8%.
With inflation expected to continue slowing in the face of highly restrictive interest rates, it comes as little surprise that the SSA chose to lower the COLA next year.
“It’s a small amount, but it’s providing some cushion,” said Mary Johnson, Social Security policy analyst at The Senior Citizens League, an advocacy group. “We have the hope that things are going to be more affordable.”
For context, there are more than 71 million Social Security beneficiaries in the U.S. About 40% of Americans aged 65 and older rely on Social Security for at least half their income, per AARP. Among them, 14% of recipients depend on these monthly government checks for 90% or more of their income.
At the same time, a recent survey from The Senior Citizens League showed many retirees are concerned over rising prices. 56% of respondents cited the cost of essentials as a top worry.
Is the 2024 Social Security COLA Really That Bad?
There are still multiple lenses with which to view today’s announcement.
On one end, 3.2% is a dramatic reduction from the 8.7% COLA increase senior citizens enjoyed this year, as well as last year’s 5.9% rate. On the other end, 3.2% is still well above the 2.6% average COLA rate over the past 20 years.
Time will tell if the 3.2% adjustment, which has some retirees up in arms, is truly inappropriately low. As Johnson mentioned, 3.2% implies a further reduction in inflation over the next 14 months. Perhaps reasonably so.
Fed Chair Jerome Powell has only continued to raise expectations of a restrictive monetary environment going forward. Powell has repeatedly reminded onlookers that the Fed won’t hesitate to raise rates until prices ease to the central bank’s long-stated 2% inflation goal.
“When inflation is going up, you don’t get enough from the COLA,” said Alicia Munnell, Director of Boston College’s Center for Retirement Research. “But as inflation stabilizes and starts going down, you get too much. Over the whole cycle, it equals out.”
Unfortunately, not everyone has such a pragmatic view of the situation. This includes Carl Brown, 70, who lives in low-cost public housing in New York City.
“My income doesn’t leave me much after paying bills and buying groceries,” Brown told CNN. “I don’t know if I’ll ever have enough.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
