In just a few weeks, all retirees receiving Social Security benefits will receive a raise. From 2024 the monthly payments will increase by 3.2%.
It’s an annual rite of passage for Social Security recipients. The Social Security Administration (SSA) calculates the next year’s cost of living adjustment (COLA) in October, and the increase takes effect in January of the following year.
However, the upcoming new year may not be so happy for retirees. There is a big problem with the Social Security COLA in 2024.
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Social Security COLA alone is not enough
Atticus, a public interest law firm, recently conducted a survey of 402 Americans age 62 and older who receive Social Security benefits. When he asked survey respondents about her COLA in 2024, there was little enthusiasm.
Atticus revealed that 62% of seniors surveyed were dissatisfied with the 3.2% increase in benefits they would soon receive. Negative opinions were about the same among men (63% dissatisfied) and women (62% dissatisfied).
The problem is simple. Many Americans believe that the 2024 Social Security COLA will not be enough to cover the high prices they have to pay for products and services. A 74-year-old man who took part in the study said, “COLA is helpful, but it’s not enough to keep up with rising costs. “I do things like that,” he said.
A whopping 64% of seniors surveyed by Atticus said they plan to cut back on discretionary spending to make ends meet. 36% said they needed to cut back on essential items.
For some, simply cutting back on spending may not be enough. Nearly 40% of seniors surveyed said they plan to find work to cover higher costs that won’t be fully offset by the 2024 COLA.
Three important questions about COLA
There are three key issues with Social Security COLAs. Unfortunately, only one of them has a potential solution for current retirees.
Perhaps the biggest fundamental problem is that Social Security is not designed to adequately fund retirement. On average, federal programs replace about 40% of an individual’s annual pre-retirement income. However, many Americans retire without saving enough to cover all of their living expenses beyond what Social Security can cover. Especially since inflation erodes the purchasing power of retirement accounts over time.
For those who haven’t yet retired, it’s wise to save as much as possible in IRAs and 401(k) plans to supplement Social Security. But for those who have already retired, it may be too late to make up for not saving enough early in their career.
Another concern is the coming COLA. rear Social Security recipients already incur significant costs. For example, her massive 8.7% increase in benefits in 2023 came too late to help seniors pay the high bills they encountered in 2022.
A third problem is that some experts believe that the inflation measure currently used to calculate Social Security COLAs, the Consumer Price Index for Urban Wage and Office Workers (CPI-W), We believe that this does not fully reflect the higher costs that older adults are experiencing. . In particular, they believe that the CPI-W does not adequately address rising health care costs for the elderly.
This has a possible fix. An alternative inflation measure called the Consumer Price Index for the Elderly (CPI-E) is designed to better address health care costs for seniors. Some politicians have proposed replacing his CPI-W with his CPI-E, but no changes have been made yet.
Elderly dissatisfaction deepens
Atticus also found that seniors’ dissatisfaction with Social Security was even worse than inadequate COLAs. Almost half of respondents (48%) say they are not confident that Social Security will meet their long-term needs. There is significant concern about the future of the program, with 61% expressing concerns about Social Security’s solvency and long-term sustainability.
If nothing is done, Social Security will certainly head towards bankruptcy. The program’s two trust funds will run out of money by 2033 without major reforms, according to the Congressional Budget Office. At that point, benefits will be reduced by 25%.
But amid all the despair and darkness, a ray of sunshine can appear. U.S. representatives and senators know they have to do something to preserve Social Security benefits. Some ideas have already been floated to help avoid future cuts.
While some degree of political maneuvering and maneuvering will almost certainly be required, it seems likely that Social Security reform will ultimately be enacted to prevent the program from being underfunded. However, it remains to be seen whether the annual COLA issue will be resolved.
