Social Security recipients are going to get a 3.2% cost of living adjustment, which means benefits will be bigger. But the increase is just meant to keep pace with inflation and might not even do a good job of that.
If you’re a retiree on Social Security, you’re going to get a bigger check next year. Having more money come into your bank account might seem great — and it is a good thing that payments are going up.
However, receiving this extra money is actually not something to get excited about. And there are a few reasons that’s the case.
The benefits increase might be smaller than you expect
The first big reason you might be disappointed in your benefit increase is because it’s going to be a lot smaller than the raises you’ve received in the last few years.
In 2022, Social Security’s cost of living adjustment (COLA) was 5.9%, and in 2023, the COLA was 8.7%. For 2024, it’s just 3.2%.
While this is a generous COLA by historical standards, recent retirees who have seen their benefits jump a lot more might be unpleasantly surprised to find they won’t get nearly as much extra when this COLA goes into effect in the new year.
Medicare costs will eat up a chunk of your benefit increase
Retirees could be disappointed in their COLA for another reason. They most likely won’t even see their payment increase by the full 3.2%.
That’s because seniors typically have Medicare Part B premiums withdrawn directly from Social Security. And those premiums are going up in 2024. The standard premium is $164.90 in 2023, and it’s increasing to $174.70 in 2024. This $9.80 increase will come right off the monthly benefit bump from the COLA.
If you were receiving a Social Security check worth $1,600 in 2023 and you get a 3.2% increase, that COLA gives you just $51.20 more per month. Once you take off $9.80 from that, you’ll only get $41.40 more per month. While that’s not nothing, it’s also not going to be life changing.
Your raise isn’t really a raise at all
Lastly, there’s one more reason not to be thrilled about a slightly bigger Social Security check.
The sad reality is, this isn’t a “raise” in the sense that it’s meant to give you more money to increase your standard of living. Instead, it’s just meant to try to help you keep pace with rising prices.
The COLA is calculated based on how much prices have risen on a basket of goods and services. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to measure how much prices have risen. So, the COLA is designed to increase your benefit just enough so you can keep buying the same things — not so you have more spending power.
Sadly, because seniors have different spending habits than clerical workers do, the COLA often ends up falling short from actually protecting seniors from inflation’s damaging effects. In fact, the Senior Citizens League estimates Social Security benefits have lost about 40% of buying power since 2000.
So, retirees are looking at a small benefit increase, a good portion of which will go toward covering Medicare costs, and which probably isn’t enough to help them cover the price increases they are actually faced with. Obviously, while extra money in your check can feel like a good thing, it’s clearly nothing to get excited about in the end.