The United States Social Security Administration (SSA) offers benefits to those who, due to such factors as disabilities, may struggle to earn an income. It also offers benefits to retirees and elderly people who have paid into the program via Social Security taxes.
The purpose of these benefits is to ensure recipients can address their basic needs. For example, a Social Security beneficiary may use their benefits to purchase food and pay for housing.
It is important that the SSA’s benefits offer sufficient purchasing power to keep up with inflation for those who receive them. To that end, the SSA calculates an annual cost of living adjustment (COLA). SSA beneficiaries should be aware there is now reason to believe the SSA’s cost of living adjustment for 2024 will decrease in a way that may significantly impact them.
Factors influencing the COLA for 2024
Various factors may influence the COLA calculation. They include the following:
- The current inflation rate
- Any legislative action that might impact how the SSA calculates the COLA
- General economic conditions throughout the nation
- Whether prices have changed in specific categories of goods or services that beneficiaries of SSA benefits may use the funds to pay for
Recent inflation data suggests the COLA is likely to decrease in 2024. Generally, the SSA accounts for changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) when calculating the annual COLA. The CPI-W is a Bureau of Labor Statistics (BLS) publication that measures the inflation rate.
In the last 12 months, the CPI-W rose 4.5%. Thus, suggesting inflation is falling. While this may sound like good news in general, it could also have implications for beneficiaries of Social Security benefits.
Potential impact on Social Security beneficiaries
The Senior Citizens League is a nonpartisan group whose goal is to educate retirees and senior citizens about their Social Security benefits. Per a recent estimate, the Senior Citizens League contends that the SSA’s cost of living adjustment for 2024 could be less than 3%. This would be a substantial decrease from the current 2023 COLA of 8.7%.
How this may impact beneficiaries is yet to be seen. And, it is worth noting that, according to the Senior Citizens League, between January 2021 and December 2022, the average benefits recipients collected failed to keep up with inflation by over $1,000.
Someone who relies on Social Security benefits to address their basic needs might struggle in the following ways if the COLA decreases substantially in 2024:
- Difficulty paying for groceries
- Challenges paying for housing
- Potential struggles paying for medication and medical care
These, however, are just a few examples. The specific ways in which a decrease in the SSA COLA will impact a particular person will likely vary on a case-by-case basis.
Additionally, these types of changes could potentially affect those who aren’t yet Social Security beneficiaries. For example, someone planning for retirement may need to account for such changes when determining whether they’ll be able to rely on future benefits to provide the assistance they may have expected.
Expert opinions and analysis
It is also important to understand that the Senior Citizens League’s estimate regarding the degree to which the COLA may decrease is just that: a rough estimate. It does not represent a general consensus. Even the Social Security and Medicare analyst for the Senior Citizens League, Mary Johnson, admits that determining how the COLA may change in 2024 will be easier as the year progresses.
Some have also pointed out that a reduction in the COLA may be a positive development in the long run. The SSA itself has issued a report indicating its current trust funds will likely deplete by 2034 unless Congress takes action. If this were to happen, the SSA would no longer be able to pay full benefits.
Kelly LaVigne, Vice President of Consumer Insights at Allianz Life, believes this is one reason a decrease in the COLA may be necessary, saying, “Hopefully we don’t have as large of a COLA because it’s also bad of the trust fund to try to have to keep up with increasing benefits by that much.” Lavigne also states, “‘We won’t really know 100%’ what the Social Security COLA or Medicare Part B premium for 2024 will be until later this year,” reminding us that what we know now is based on limited information that may be subject to change.
The SSA will release its official COLA for 2024 in October of this year (2023). Until then, while experts can speculate about how the COLA may change, it is impossible to know for sure precisely how the COLA will change and how this change may impact those who receive Social Security benefits. Keep in mind, these benefits are not merely for retirees. Beneficiaries also include those who can’t work due to injuries, illnesses, or other such conditions and disabilities.
Possible solutions and alternatives
Potential solutions to a decrease in the COLA can take many forms. On a large scale, it may be necessary for lawmakers to pass legislation to change the way the SSA calculates the COLA. This may involve increasing minimum benefit levels.
However, recipients of Social Security benefits may be unable to wait for lawmakers to take action. Therefore, solutions and alternatives that individuals may consider if the COLA decreases significantly include:
- Applying for additional assistance through state programs and/or non-profit organizations
- Tapping into savings and investments
- Seeking part-time work to earn more money
- Reducing expenses
- Applying to other SSA financial assistance programs, like the Supplemental Security Income (SSI) program
Each of these options has its pros and cons. For example, the process of applying for additional assistance may be time-consuming, and there is no guarantee of acceptance. On the other hand, using one’s personal savings to make up for an unexpected decrease in the COLA could be a temporary fix that might end up exacerbating someone’s financial struggles in the long run.
Preparing for a COLA Decrease in 2024
None of this is meant to worry anyone. Rather, it is simply important for those who rely on Social Security benefits to understand how a potential decrease in the COLA in 2024 may affect them personally. By preparing accordingly, a beneficiary may have a better chance of minimizing the impact of a COLA on their finances and overall well-being.
- 2024 COLA Announced By The SSA
- Social Security COLA 2024 To Be Announced on October 12, 2023: Here’s Everything You Need To Know
- What Conditions Qualify for Disability?
- SSDI Application
- Disability Lawyer
- As inflation starts to subside, a lower Social Security cost-of-living adjustment for 2024 may be on the horizon – (CNBC)
- Your 2024 Social Security Raise Is Set to Disappoint -- and 56 Years of Flawless History Shows Why – (The Motley Fool)
- Expert Advice on Social Security's 8.7% COLA – (The Street)
- Consumer Price Index: Bacon & Eggs Cost You 8.4% More on Your Grocery Bills – (GOBankingRates)