The rate of inflation has been dropping over the past few months. This is likely good news for your cost of living, but this will likely mean a smaller Social Security cost-of-living adjustment in 2024. According to a recent estimate from the Senior Citizens League, the 2024 Social Security cost-of-living adjustment could be just three percent.
The June CPI dates showed inflation rose just 0.2% in June. For the past year, inflation was still running at three percent. The good news is this is the lowest level of inflation since March 2021.
You have to wait until October, when the final 2024 Social Security COLA will be announced. Last year, Social Security recipients received the biggest raise in more than 40 years, with a Social Security COLA of 8.7%.
Average Social Security Check In 2023
With the average Social Security check coming in at $1,787 per month, in 2023, the estimated 2024 Social Security COLA would be around $54 per month. This COLA may not be enough to cover increases in Medicare Part B premiums for many retirees.
Maximum Social Security Check In 2023
After the substantial Social Security COLA of 8.7% for 2023, the maximum Social Security benefits for retirees have increased quite a bit in 2023. For Americans claiming Social Security benefits at age 62, the maximum Social Security benefit per month should be about $2,570. If you wait until your Full Retirement Age, your maximum Social Security benefit in 2023 will be about $3,636 per month. Waiting from 62 to full retirement age increases your amount by around 30% per month.
The maximum Social Security benefit at age 70 will be about $4,559 per month in 2023. While earning almost $55,000 per year from Social Security may sound fantastic, if you qualify for the maximum Social Security benefit, this is likely only replacing a small portion of your pre-retirement income.
Why Is There A Social Security COLA?
What could be a meaningful retirement income stream at 62 could be an income level that leaves you in poverty in your nineties. The pain of inflation is often felt hardest by those living on fixed incomes. Many retirees have struggled with the new sky-high prices of things essential to their living standards. We are talking about groceries, housing, and utilities, not to mention medical care or even life-saving medications.
The 2023 Social Security cost-of-living adjustment will kick in on January 2024. So, retirees already depending on Social Security will likely continue to see their retirement incomes stretched thin over the next six months.
Also, remember that your Social Security cost-of-living adjustment for 2024 could increase the taxes you pay on your Social Security benefits.
How Are Social Security COLAs Calculated?
To calculate the Social Security COLA for 2024, the Social Security Administration (SSA) uses the average inflation in the third quarter, based on the CPI-W, to calculate how much to increase Social Security benefits for the following year. For reference, the 2022 Social Security COLA was 5.9%, and the 2023 Social Security COLA was 8.7%. These Social Security COLAs represented the largest Social Security cost-of-living adjustment in nearly 40 years.
The Fed is working hard to bring down inflation, which could cause the Social Security COLA to be lower than the three-percent estimate listed above. I wouldn’t rush out and make large purchases dependent on another record Social Security COLA to be affordable. The newer, higher costs of necessities like food, electricity, and gas will likely eat up the Social Security COLA for 2024.
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