The Social Security COLA Increase Will Return to Reality in 2024 New Predictions

The Social Security COLA Increase Will Return to Reality in 2024 New Predictions

The Social Security COLA Increase Will Return to Reality in 2024 New Predictions.As inflation rates begin to stabilize, there’s increasing speculation that the rise in Social Security benefits in the upcoming year won’t be as significant as the increase observed in 2023.

The Social Security COLA Increase Will Return to Reality in 2024 New Predictions

Forecasts from the Senior Citizens League, a neutral advocacy group, suggest that retirees might see a cost of living adjustment (COLA) around 3%. This is significantly less than the 8.7% increase experienced in 2023. The League, which keeps a close eye on inflation data, provides insights into potential COLA shifts.

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A more definitive estimate will be available on September 13, which could vary based on August’s inflation data. The precise inflation adjustment percentage will be disclosed in mid-October.

To put things in perspective

  • 2023 saw an 8.7% increase in Social Security and Supplemental Security Income benefits, marking the largest surge since 1981’s 11.2% inflation adjustment.
  • 2022’s COLA was a respectable 5.9%
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While it’s premature to determine the exact increase for next year, projections between 2.7% to 3.2% are considered likely.Mary Johnson, a policy analyst with the Senior Citizens League, commented, “We are returning to reality.” She added that a 3% increase is still above the average 2.6% inflation adjustment seen over the past two decades. Notably, there were no adjustments in 2010, 2011, and 2016.

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Before the pandemic’s economic disruptions, inflation adjustments were modest. For instance, 2020 saw a 1.6% adjustment, followed by a 1.3% increase in 2021. However, Johnson emphasized that for many seniors, a 3% increase will feel insufficient compared to 2023’s 8.7% hike.

Understanding Inflation’s Impact on Social Security

The Social Security Act outlines a specific formula for calculating inflation adjustments. This is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers’ monthly changes for July, August, and September.

The U.S. Bureau of Labor Statistics will release August’s inflation data on September 13 and September’s data on October 12. The most recent data showed a 3.2% year-over-year increase in the consumer price index for July.

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For Social Security adjustments, the CPI-W figures for July, August, and September are averaged. The third quarter average for this year will be compared to last year’s third quarter average to determine the COLA for January 2024 checks.

If the COLA is 3%, the average monthly Social Security retirement benefit could rise by approximately $55. This would mean an additional $660 annually for some retirees.

Inflation Outlook

While inflation isn’t expected to decrease linearly, it’s anticipated to gradually diminish following 11 interest rate hikes by the Federal Reserve since March 2022. However, rapid wage growth could cause occasional spikes in inflation.

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Omair Sharif, president of Inflation Insights, predicts the year-over-year consumer price index might increase to about 3.6%-3.7% in August and around 3.5%-3.6% in September. This is a slight increase from July’s 3.2%.

Tax Implications for Retirees

Retirees receiving Social Security, pensions, or accessing 401(k) savings might face more complex tax situations in 2023. Taxation rules for Social Security benefits can be intricate, and many retirees may need to review them. Depending on combined income levels, retirees might have to pay taxes on a portion of their Social Security benefits.

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April Walker from the American Institute of CPAs highlighted that the inflation-driven boost in 2023 could increase the total combined income, potentially leading to more seniors paying taxes on their Social Security benefits.

Factors Affecting the COLA Boost

The exact COLA increase remains uncertain. Medicare beneficiaries, in particular, will need to consider the new Medicare Part B premiums announced later in 2023, which will impact the net COLA boost.

The Medicare trustees have projected a potential increase of $10 for the standard monthly Part B premium in 2024. Additionally, the introduction of the expensive Alzheimer’s drug, lecanemab (brand name Leqembi), might further influence premiums.

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