The year 2024 is just around the corner, and Social Security recipients are eagerly anticipating their annual cost-of-living adjustment (COLA). But the big question on their minds is, will the 3.2% COLA for 2024 be sufficient to help them cope with the ongoing inflation? Let’s dive into the details and explore the impact of this adjustment.
Social Security COLA in 2024: A Closer Look
Social Security recipients received a generous 8.7% COLA in 2023. However, the outlook for 2024 isn’t as optimistic, as the COLA is set to drop to 3.2%. This reduction in the COLA percentage is primarily due to the recent stability in inflation, as revealed by government data in September.
In September, the annual inflation rate stood at 3.7%, a figure that mirrored the increase in August. While this is a notable decrease from the 9.1% high recorded in June 2022, it’s still well above the Federal Reserve’s target of 2%. The “core” inflation rate, which excludes the volatile food and energy sectors, also decreased from 4.3% in August to 4.1%.
Despite the decline in inflation, it remains substantially higher than the Federal Reserve’s ideal target, leading to a less robust COLA for Social Security beneficiaries.
Understanding the 2024 COLA
The 3.2% COLA for 2024 represents a significant drop from the 8.7% boost seen in 2023. While it still surpasses the 2.6% average over the past two decades, it has left many older adults feeling uncertain about their financial future. The latest retirement survey conducted by The Senior Citizens League, a nonprofit seniors group, surveyed 2,258 individuals, revealing growing concerns about Social Security benefit cuts.
Approximately 56% of survey respondents expressed concerns that their retirement income might not be sufficient to cover essential expenses in the coming months. Even more worrisome, Social Security benefit cuts are a top concern, indicating the anxiety prevailing among older adults.
The Inflation Dilemma
Despite the overall inflation rate showing signs of slowing down, a staggering 68% of older adults reported that their household expenses remained at least 10% higher than a year ago, as per the League’s survey. This prolonged period of elevated expenses is taking a toll on retirees, further heightening their apprehension.
Worries About Benefit Cuts
The fear of benefit cuts ranks as a top concern for nearly 6 out of 10 respondents in the survey. Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, expressed her concerns about the financial well-being of lower-income older households. She pointed out that significant numbers of such households have lost access to safety net programs in the past year, exacerbating their worries about potential benefit reductions.
Tax Implications
In 2023, Social Security recipients experienced the highest COLA in four decades. However, this boost comes with a downside – an increased tax liability. Johnson predicts that more beneficiaries will owe federal income taxes on their Social Security benefits for the first time during the 2024 tax season.
Up to 85% of Social Security benefits can be considered taxable income when an individual’s income surpasses specific thresholds. What makes matters worse is that these income thresholds have never been adjusted for inflation. Consequently, as Social Security income increases due to COLAs, the number of retirees subject to taxation of benefits and the portion of benefits that may be taxable are both on the rise.