Do you remember all the buzz one year ago about the Social Security cost of living adjustment? Better known as “COLA,” the annual adjustment in benefits – anticipated last year to be one of the largest in history for 2023 – was being driven by sky-high inflation. By the time Social Security officials processed all the inflationary numbers, beneficiaries saw their Social Security payments for 2023 jump by 8.7 percent – the highest COLA hike in four decades.

This year, the Social Security COLA picture is quite different. While inflation remains stubbornly high, it’s far lower than it was a year ago. The 2024 adjustment won’t become official until September inflation is known, but as of today – according to this report from USA Today – experts say Social Security beneficiaries can probably anticipate a higher-than-average but far-lower-than-2023 COLA of 3.2 percent.

Report Medora Lee wrote the USA Today article which also includes some insight into how inflation is harming seniors, and what might happen to Medicare Part B premiums. The bottom line, we think, is that America’s seniors are having a tough time keeping up. Let’s take a look.

Social Security COLA Pegged to Summer Inflation Rate

According to USA Today, the forecast for Social Security’s projected 2024 benefits now stands at 3.2 percent. That’s up a tick from the earlier 3 percent projection due to slightly higher August inflation figures. 

“Annual inflation in August rose to 3.7 percent, from 3.2 percent in July,” Lee’s USA Today article notes. Ironically, just over a year ago, inflation stood at a 40-year high of 9.1 percent (back in June 2022). “Although inflation remains much higher than the Federal Reserve’s 2 percent target, the trend remains mostly lower.”

Social Security COLA Higher Than Average, Far Below 2023

Given those numbers, says the article, “Social Security recipients will see a lower cost-of-living adjustment (COLA) of 3.2 percent next year, according to a forecast from The Senior Citizens League, a nonprofit seniors group.  That’s less than half of the four-decade-high 8.7 percent COLA in 2023 but higher than the 2.6 percent average over the past 20 years.” 

While a drop in inflation clearly benefits seniors, senior advocates worry that aging Americans are falling farther and farther behind. “The harsh reality is that the amount that the COLAs increase benefits in most years is meager at best,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.   

Despite Social Security COLA, Seniors Haven’t Kept Up

“Annual COLAs are meant to ensure Social Security beneficiaries’ purchasing power isn’t eroded by inflation,” reporter Lee writes.  “However, COLA hasn’t kept pace.”  As a result, she observes, seniors were “the only group that saw its share of poverty increase between 2020 and 2021,” according to the Census Bureau.  

As if to prove the point, Lee reports that the Census Bureau has just released data showing that the poverty rate for older adults “jumped to 14.1 percent in 2022 from 9.5 percent in 2020 and 10.7 percent in 2021, after accounting for government cash and noncash benefits, geography, taxes and necessary expenses.” Not an optimistic picture.

Social Security Not Designed to be Sole Income Source

Social Security was intended to replace roughly one-third of a middle earner’s average wages, according to Social Security officials. But many seniors rely on Social Security for up to 90 percent of their income. This over-reliance makes them extremely dependent on cost-of-living adjustments to help counter inflationary pressures.

As USA Today’s Lee writes, even the big 2023 adjustment left seniors falling behind.  “Even though inflation this year has been running below the 8.7 percent beneficiaries received [for 2023], seniors haven’t been able to recoup the losses they incurred in the past two years when inflation reached a 40-year high, Johnson of the Senior Citizen League said.” 

As Johnson told USA Today, “Inflation was so severe in 2021 and 2022 that the average Social Security benefit fell behind by $1,054, leaving 53 percent of retirees doubting they will recover because household costs rose more than the dollar amount of their COLAs.”  

Social Security COLA and the Medicare Part B “Wildcard”

Plenty of other costs eat away at the cost-of-living adjustment, says USA Today, including Medicare. “Seniors also worry every year about what they’ll have left of their COLA increase after Medicare Part B premiums, typically announced in November, are paid,” Lee writes. “Medicare Part B premiums, which are higher among high-income folks, are automatically deducted from monthly Social Security payments.”

According to Lee, last March the Medicare Trustees estimated that monthly Part B premiums for 2024 would increase to $174.80 next year, up from $164.90 this year. “However,” she adds, “that doesn’t include costs that come up after the estimate is released. One such cost could be Medicare’s initiating coverage in July of another new Alzheimer’s drug: lecanemab, known by the brand name Leqembi.”

(You’ll find our take on Leqembi in this August article from the Blog.)

Social Security COLA and the IRS

“Taxes eat into Social Security benefits, too,” USA Today writes, and higher benefits can trigger a tax surprise.

“In a survey of 1,759 retirees by The Senior Citizens League in mid-July,” says the article, “more than one in five Social Security beneficiaries (23 percent) said they paid taxes on a portion of their benefits for the first time” during the tax season that ended in April 2022. (The Social Security COLA that took effect in January 2022 was 5.9 percent.) 

As people start paying taxes for 2023, their income could take another whack. “We expect the number who pay tax on a portion of their Social Security benefits to jump even more as next year’s tax season reflects the 8.7 percent COLA increase in 2023,” Johnson told USA Today. 

Some Seniors Cope by Delaying Medical Care

One disturbing fact pointed out in the USA Today analysis: a large number of seniors are making ends meet by postponing medical care.

“With 79 percent of respondents in July saying essential items were pricier than a year ago, most are putting off medical care to pay for daily living expenses, the survey said. Nearly 2 out of 3 have postponed dental care including major services such as bridges, dentures, and implants to cope, while 43 percent said they’ve delayed optical exams or getting prescription eyeglasses.”

The article adds that one-third of respondents had “postponed getting medical care or filling prescriptions due to deductibles, out-of-pocket costs, and unexpected bills.”

Social Security COLA – Calculation and Timing

Each year, the Social Security Administration determines the COLA for the year to come based on the consumer price index for urban wage earners and clerical workers, called the CPI-W. They look at three months’ worth of data: July, August, and September.

The much-anticipated announcement is made in October and takes effect in January.

The impact of the program is huge, says USA Today. Roughly 70 million Americans receive benefits from programs administered by the Social Security Administration, three-fourths of whom are retirees and their dependents.   

About 90 percent of those 65 and older receive a monthly benefit from Social Security. The average payment stands at $1,704 per month, according to the Social Security Administration, which means a 3.2 percent COLA would mean an extra $54.50 each month, before taxes.

This is a developing story, so we’ll keep an eye on things as we hear more. Meanwhile, this AARP analysis shows the history of Social Security COLA changes since 1975 when adjustments began, in case you want to look deeper.

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(originally reported at www.usatoday.com)