Millions of Americans who rely on Social Security benefits can expect a welcome boost in their monthly payments in 2024. This increase is a result of the annual Cost-of-Living Adjustment (COLA), which takes into account inflation and rising living expenses. While there have been reports circulating about a specific $440 monthly increase, it’s important to understand the details and how the actual amount will be determined.
Social Security COLA: Reflecting Rising Costs
The Social Security Administration (SSA) uses the Consumer Price Index for Wage Earners and Clerical Workers (CPI-W) to calculate the COLA. This index tracks changes in the prices of goods and services that typical urban wage earners purchase. When inflation rises, the CPI-W goes up as well, reflecting an increase in the cost of living.
In response to inflation, the SSA adjusts Social Security benefits each year to help maintain purchasing power for recipients. This ensures their benefits don’t lose value due to rising prices.
2024 COLA Increase: Anticipated Rise, Not a Guaranteed Amount
News reports mentioning a specific $440 monthly increase in Social Security for 2024 are misleading. The actual increase will be a percentage based on the final 2023 inflation figures as measured by the CPI-W. While many anticipate a significant increase due to rising inflation in 2023, the exact percentage won’t be announced until later this year.
Here’s a breakdown of how the COLA is determined:
- Data Collection: Throughout the year, the Bureau of Labor Statistics gathers data on price changes for various goods and services.
- CPI-W Calculation: This data is used to calculate the CPI-W for the third quarter (July, August, September) of the current year compared to the same period in the previous year.
- COLA Announcement: Based on the CPI-W increase, the SSA announces the official COLA percentage typically in late October or early November.
- Benefit Adjustment: The COLA percentage is then applied to adjust Social Security benefits for the following year, which takes effect in January.
While the exact COLA for 2024 remains unknown, some experts predict it could be around 3.2%, which would be the highest increase in decades. However, it’s important to remember that this is an estimate, and the actual figure could be higher or lower.
Who Qualifies for the Social Security COLA Increase?
Nearly all Social Security beneficiaries will receive the COLA increase, including:
- Retirees: Individuals who receive retirement benefits based on their work history and contributions.
- Survivors: Spouses, children, or parents of deceased workers who qualify for survivor benefits.
- Disabled Individuals: People with disabilities who qualify for Social Security Disability Insurance (SSDI).
The amount of the COLA increase will be applied proportionally to each recipient’s existing benefit amount. This means those receiving higher benefits will see a larger dollar amount increase, while those with lower benefits will receive a smaller increase, although the percentage increase will be the same for everyone.
How Will the Increase Impact Your Benefits?
The impact of the COLA increase on your benefits will depend on two factors:
- Your Current Benefit Amount: The higher your current benefit, the larger the dollar amount increase you will receive from the COLA.
- The Final COLA Percentage: The official COLA percentage will be announced later in 2023. Once the percentage is known, you can estimate your increased benefit by multiplying your current benefit amount by the COLA percentage (expressed as a decimal).
For example, if you currently receive a monthly Social Security benefit of $1,500 and the COLA for 2024 is set at 3.2% (0.032), you can expect an increase of approximately $48 per month ($1,500 x 0.032 = $48). However, this is just an example, and the actual increase will depend on the final COLA percentage.
What You Can Do Now to Prepare
Here are some steps you can take to prepare for the upcoming COLA increase:
- Stay Informed: Keep an eye out for news announcements from the SSA around October or November 2023 to learn the official COLA percentage for 2024.
- Review Your Budget: Once you know the approximate amount of your benefit increase, take some time to review your budget and see how this additional income might impact your spending plan.
- Plan for Potential Changes: Consider whether the increased income might affect your eligibility for any other government programs that are based on income thresholds.