Social Security COLA May Be Less in 2024
For 2023, Social Security Retirement and Supplemental
Security Income (SSI) benefits increased due to inflation. The increase was 8.7%,
resulting in an average monthly benefit increase of $146 per month for a yearly
increase of $1,827 in 2023.
Social Security benefits are adjusted yearly for inflation
as a cost-of-living adjustment (COLA) based on the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W index measures the
monthly price change in a market basket of goods and services, including food,
energy, and medical care.
With the inflationary prices Americans experienced in 2022,
the 2023 Social Security COLA adjustment helped increase monthly benefits.
While we can’t predict what inflation will do in 2023, the Consumer Price Index
may decrease if inflation cools. In this instance, the Social Security COLA could
be much less.
According to estimates by The
Senior Citizens League, using current inflation data from the Consumer Price
Index, it's estimated that there will be a 3.1% COLA increase in 2024. The 3.1% COLA increase would be
the lowest since 2020, when there was a 1.3% increase. Social Security benefits represent about
30% of income for Americans aged 65 and older.
was meant to be one source of retirement income, with monthly retirement income
from other strategies such as:
Traditional IRAs- Traditional IRAs fund with
pre-tax contributions, which grow tax-deferred. IRA contributions and
accumulation are taxed at the owner's tax rate and are penalty-free if taken
after age 59 1/2 when taken as distributions. If distributions occur before age
59 1/2, they tax as ordinary income, and an early distribution penalty of 10%
Roth IRAs- Roth IRAs fund with after-tax
contributions, so you pay taxes upfront. When you take distributions, both the
contribution and accumulation are tax-free. Contributions are withdrawn tax and
penalty-free for emergencies, home purchases, and more. However, drawing the account's
accumulation before age 59 1/2 will result in a 10% IRS penalty.
Annuities- Annuities offer tax-deferred
growth of earnings, protection of principal, and a guaranteed lifetime income. Annuities
are contractual agreements with an insurance company that provide an investor
with a guaranteed income stream during retirement in exchange for a premium.
Value Life Insurance- Cash value life insurance provides insurance for your entire life.
With this type of life insurance, if you pay the premiums on time, the cash
value accumulates, providing you with the cash you can use in retirement by
taking a policy loan. If cash remains in the policy, beneficiaries will receive
the remaining value as a death benefit after the policy loan is satisfied.
It’s important to not rely
on Social Security and COLA increases as the primary source of retirement
income. A financial professional can help you plan for your situation by
implementing other retirement savings strategies so that Social Security COLA
adjustments aren’t so impactful.