The word is out about the Social Security cost of living adjustment (COLA) for 2024! The Social Security Administration has officially said what next year’s COLA will be.
In 2024, Social Security beneficiaries will get a 3.2% raise in their benefits. While it’s not as big as the 2023 COLA of 8.7%, it’s still quite a lot. This is good news for retirees and others receiving Social Security payments for a few reasons.
One, because it means their payments will be higher to keep up with the rising costs. Secondly, inflation isn’t as high as it was in the past two years. That means that retirement dollars will maintain a little bit more purchasing power. Still, the prices of everyday goods and services are high as-is, especially for retirees on a fixed-income budget.
Let’s go through what the 2024 COLA for Social Security means, how they calculate this raise, and what you can do to make your money last longer. With statistics showing people spending as much as one-third of their lives in retirement, knowing how your Social Security benefits and other income sources work together can help you stretch your retirement dollars.
How Does the U.S. Government Calculate the Social Security Raise?
The agency that determines COLAs for Social Security is the Bureau of Labor Statistics. They are the “principal fact-finding agency for the federal government in the broad field of labor economics and statistics.”
They use something called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to work out the raise for Social Security. This CPI-W checks how prices for things people buy in cities across the USA are changing. They look at eight major categories of spending for that. When the numbers show that things are getting more expensive, Social Security payments usually go up.
Oil, energy, food, housing, and medical care costs are important aspects of this calculation. They make the CPI-W go up or down.
What Does the 3.2% COLA in 2024 Mean for You?
We have seen high inflation over the early 2020s. With things becoming more expensive, a 3.2% raise on Social Security benefits is great news for those who need more money to cover the higher costs of living. It’s not as big a boost in 2023 and 2022, but it will provide retirees with a little bit of relief for keeping up with the jump-up in living costs.
Right now, the average monthly payment is just above $1,700. So, it might go up by around $54 every month or so next year when the 3.2% raise takes effect. But remember, your own payments might be different depending on what you paid into Social Security when you were working. That is based on your earnings record (how much you earn per year) and your work history.
How Much More Will Prices Go Up?
It’s pretty tough to predict what prices, like things you buy, will look like in a year. Even seasoned economists with years of experience in data-crunching can’t know for certain what inflation will be.
But we can probably believe that prices may keep going up in the next few years. Think of good and bad economic times as different seasons. No matter what happens, and again, no one can predict what will happen anyway, having a plan will help you stay financially high and dry in the rainy season.
Getting the Most Out of Your Social Security Benefits
Creating a well-thought-out financial plan begins with making the most of Social Security. With inflation continuing to have its way, it’s crucial to ensure that you get all that you can from your Social Security benefits in retirement. Here are a few things that you can keep in mind if you are close to retirement, or perhaps you have hit retirement age in your mid-60s and are still working.
You can start receiving Social Security paychecks as early as 62, but your payments will be less if you do that. The full retirement age is different for everyone, and it depends on their birth year, but it’s usually between 66 and 67. If you wait until that age to get Social Security, you will receive 100% of your benefit every month.
There are also advantages to waiting to start Social Security after full retirement age. For each year that you, your benefit goes up by 8%. The latest age that you can wait until is 70, so if you push pause on collecting your Social Security payments at 70, your benefit will have increased 32%.
The breakeven point of starting Social Security early vs. past full retirement age is quite a few years into retirement, so talk to your financial professional about what options might be good for your situation.
Making Sure You Have Enough Money, Even with the Big COLA for 2024
Even with this big raise, Social Security wasn’t made to be the only source of income when you retire. According to the Social Security Administration, benefits will replace roughly 40% of people’s pre-retirement income. The income gap has to be made up somehow.
It’s a good idea to have different sources of income, like pensions, 401(k)s, and IRAs. Depending on your financial situation, you might think about ways to get a steady income that goes along with Social Security.
Not everyone has a pension. The good news is you have alternatives. Annuities let you have your own pension-like income stream and design it as you would like for your situation.
There are simple annuities that turn your money into an irreversible, guaranteed lifetime income stream. Other annuity types are more customizable. They let you add on benefits, such as increased payouts for certain long-term care. Some annuities have an add-on benefit called an income rider, which lets you have some access to your money and still receive lifetime payments. These add-on benefits usually come with an annual fee.
Other Options for Lasting Retirement Financial Security
Diversifying your money sources helps you ensure that you have enough income when you are retired, even when prices are rising. If you are still worried that you might not have enough, there are other things that you can do.
You can work part-time when you are retired or live in a smaller home to cut down on expenses. Talk to a financial professional about ways to make your retirement money go further and get the most out of what you already have.
If you need to save more and work longer, that can give you more time to put money into retirement accounts and make your retirement money grow.
The Bottom Line on the 2024 Social Security COLA Update
The Social Security COLA for 2024 helps retired folks keep up with rising costs. But don’t forget that Social Security isn’t meant to be your only money when you retire. It’s a good idea to get money from different places and make wise choices about when to get Social Security money.
No matter what, it’s smart to plan ahead for your money, especially when it comes to something as important as your retirement.
Do you want help making confident, well-informed choices about Social Security or planning your retirement money? Or maybe you would like another opinion about your plan. When you are ready for personal guidance, there are many experienced and independent retirement experts at SafeMoney.com who can help.
You can start by looking at our “Find a Financial Professional” section to talk to someone. You can ask for a first meeting to talk about your situation and see if you want to work together. If you need help finding someone, please call us at 877.476.9723.