Social Security recipients will see a much smaller 3.2% increase in benefit checks next year due to a cost-of-living adjustment (COLA), after government data showed Thursday that inflation stabilized in September from the previous month.
September’s annual inflation rate was 3.7%, the same as August’s increase but below the 40-year high of 9.1% in June 2022. Excluding the volatile food and energy industries, so-called “core” inflation fell to 4.1% from 4.3% in August.
Although inflation is still about twice the Fed’s 2% target, it is still mostly at lower levels, meaning Social Security recipients will see a lower coke.
The 3.2% increase is about one-third of Coke’s four-decade high of 8.7% growth in 2023. While benefit increases are still above the 2.6% average over the past 20 years, seniors are pessimistic about their financial situation and income. The latest retirement survey of 2,258 people by the Senior Citizens Alliance, a nonprofit seniors organization, shows that cuts to Social Security benefits are increasingly likely.
“The top concern for 56 percent of respondents is that their retirement income will not be enough to cover the cost of necessities in the coming months,” Mary Johnson, a Social Security and Medicare policy analyst at the Alliance for Seniors, said in a report. .”release. “Social Security benefit cuts are a bigger issue.”
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Why isn’t Coke enough?
There are many reasons why Coke falls short of expectations, including:
◾ inflation: The alliance’s survey showed that despite a slowdown in overall inflation, 68% of seniors said their household expenses were still at least 10% higher than a year ago. They said the situation continued last year.
◾ Benefit cuts: Nearly six in 10 respondents ranked this as their top concern. “Over the past 12 months, large numbers of low-income older households have been cut off from certain safety net programs,” Johnson said.
Some people face a double whammy. With COLAs of 5.9% and 8.7% in 2022 and 2023, respectively, income increases enough to make some people ineligible for low-income assistance programs such as the Supplemental Nutrition Assistance Program, SNAP (food stamps) and rental assistance, as well as the federal emergency COVID-19 assistance. 19 Assistance to SNAP and Medicaid ended earlier this year.
◾ Taxes: With Social Security beneficiaries receiving the highest COLA in 40 years in 2023, Johnson expects more beneficiaries to pay federal income taxes on their Social Security benefits for the first time during the upcoming 2024 tax season.
When income exceeds certain thresholds, up to 85% of Social Security benefits may be counted as taxable income. Unlike other parts of the federal income tax law, the income thresholds at which Social Security benefits are taxed are never adjusted for inflation. Therefore, as Social Security income from COLAs increases, the number of retirees subject to benefit taxes increases, as does the portion of benefits that may be taxable.
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What can be done to help older people?
Congress could pass legislation that would allow the income tax threshold for Social Security taxes to be adjusted annually based on inflation, just as the Internal Revenue Service adjusts tax brackets.
Here’s an example of what this might mean to someone:
◾ Current law states that you may be subject to income tax on up to 50% of your benefits if your personal income is between $25,000 and $34,000, and up to 85% of your benefits if your income exceeds $34,000.
◾ Johnson said if those thresholds were adjusted for inflation to 2023 dollars, an individual filing status of $25,000 would be about $74,614 and an individual filing status of $34,000 would be about $101,475.
Congress could also change the way Cokes are calculated to better reflect how seniors spend their money.
“If this were the law today, COLA in 2024 would be higher — about 4.2 percent,” Johnson estimated, using the government’s Consumer Price Index for Seniors.
How is COLA calculated?
The General Administration of Social Security’s annual COLA is based on the annual average increase in the consumer price index for urban working class and clerical workers from July to September. The urban working-class index largely mirrors, with slight variations, the overall index released monthly by the Department of Labor. Last month, the index remained at 3.7%, while the urban working class index was at 3.6%.
The Seniors Alliance uses the latest inflation data to continually predict the price of Coke next year. September is especially important because it is the last month that the SSA officially uses to calculate colas for 2024.
How many Americans are eligible for the Coke price increase?
About 70 million Americans receive benefits from SSA-administered plans, with retired workers and their dependents accounting for 76.9% of benefits paid in 2022.
As of Dec. 31, nearly 9 in 10 people age 65 and older received Social Security benefits. Among them, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
According to the SSA, the average monthly check for Social Security recipients in August was $1,705.79. A 3.2% cola means about an extra $54.58 per month.
When does the 2024 Social Security COLA take effect?
The new COLA will take effect starting in January.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. You can contact her via:[email protected] for our free Daily Money newsletter every Monday for personal finance tips and business news.