The annual Social Security cost-of-living adjustment (COLA) has always been a hot topic among retirees and those planning for retirement. In a world where inflation seems to be constantly on the rise, Social Security is unique for its regular annual adjustments to help beneficiaries keep pace with the ever-increasing cost of living. For 2024, the COLA announcement came as a significant change from the past couple of years, with a 3.2% increase.
Social Security provides an annual COLA to ensure beneficiaries’ purchasing power isn’t eroded by inflation. This automatic adjustment, based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter of 2023 compared to the previous year, 2022, helps retirees maintain their standard of living. This COLA makes Social Security unique because not all sources of retirement income offer this inflation protection. Pensions, for example, often lack automatic inflation adjustments. Monthly annuity income or withdrawals from retirement accounts like IRAs and 401(k)s typically don’t have built-in inflation protection. While you can increase your withdrawal rate in response to rising costs, it’s crucial to remember that your investments must perform well to keep pace with inflation.
The 2024 Social Security COLA came in at 3.2%, which, although lower than in previous years, is still significant. Some might find it disappointing compared to the 8.7% increase for 2023 or the 5.9% increase for 2022. However, considering the average COLA over the past couple of decades, which was just over 2%, 3.2% appears comparatively robust.
With this 3.2% Social Security increase, beneficiaries will see an increase in their monthly payment of $55 on average. This boost can make a meaningful difference in your monthly cash flow, so be sure to revisit your budget and financial goals. If applicable, you can allocate the additional funds wisely, whether to bolster savings, reduce debt, or fund other goals.
The 2024 COLA underscores the importance of Social Security in your long-term financial plan. With careful consideration and strategic planning, you can ensure a more secure and comfortable retirement, so reach out to our team of Certified Financial Planners™ today to make the most of this unique planning tool.
