Social Security COLA Set at 3.2% for 2024

While sharply lower than in the last two years, the 2024 adjustment could still buttress retirees’ buying power if inflation rises at a slower clip than the COLA. The Federal Reserve’s Survey of Professional Forecasters projects that the main Consumer Price Index will decline gradually from the current 3.6 percent to 2.7 percent by mid-2024.

“A lower COLA just means that Social Security beneficiaries have faced less inflation since their last COLA, which is good for household finances,” said Emerson Sprick, senior economic analyst at the Bipartisan Policy Center.

However, those gains will be offset in part by an increase in monthly premiums for Medicare Part B, the portion of Medicare that covers outpatient services such as doctor visits. For most Medicare enrollees, Part B premiums are deducted directly from their Social Security payments, so the rate hike will eat into the COLA.

The standard Part B premium will be $174.80 a month in 2024, up 6 percent from the current rate of $164.90, the Centers for Medicare & Medicaid Services announced Oct. 12. Most Medicare beneficiaries pay the standard rate, but higher earners (individual taxpayers with incomes above $103,000 and couples filing jointly who make more than $206,000) are subject to additional charges.

While the COLA “is great news for beneficiaries,” the Medicare premium hike “will absorb a disproportionate share” of the increase, said Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities.

That could put additional strain on Social Security recipients’ budgets. “Seniors and people with disabilities tend to spend a greater share of their incomes on health care, and medical prices are rising faster than overall inflation,” Romig said.

New payroll tax threshold

Social Security is largely funded by a payroll tax of 12.4 percent on eligible wages, with employers and employees paying equal 6.2 percent shares. (Self-employed people pay the full amount.) The tax is applied to earnings up to a certain threshold, which will increase next year from $160,200 to $168,600.

Those contributions go toward monthly payments for today’s Social Security beneficiaries, with any excess funneled into two trust funds — one for retirement and survivor benefits, the other for disability benefits. The funds had a surplus of more than $2.8 trillion at the end of 2022, but Social Security’s trustees estimate this reserve will be exhausted by 2034 unless Congress acts to stabilize the system’s finances.

Absent such action, benefits would continue to be paid out from incoming payroll taxes, but they would be about 20 percent lower, the trustees project in their most recent annual report.

AARP hosted a bipartisan conversation in September with U.S. Sen. Bill Cassidy (R-La.) and U.S. Rep. John Larson (D-Conn.), both of whom have outlined proposals to address the looming trust fund shortfall.

“AARP is urging Congress to work in a bipartisan way to keep Social Security strong and to provide American workers and retirees with a long-term solution that both current and future retirees can count on,” Jenkins said. “Americans work hard to earn their Social Security, and it's only fair for them to get the money they deserve.”