Social Security COLA Likely to Increase Due to High Inflation

Juilia Ruskin
4 Min Read

The Social Security Administration (SSA) is expected to announce a significant cost of living adjustment (COLA) for Social Security benefits next year. This adjustment is due to ongoing high inflation, which has made living expenses much higher than expected. Here’s what you need to know.

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Why the Increase is Expected

Inflation has been a major problem this year. The Federal Reserve aimed to reduce it to 2%, but that goal has not been met. Because of this, the SSA will likely increase Social Security benefits to help people cope with the higher costs.

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The SSA calculates these adjustments based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from July, August, and September. Since the CPI-W showed a 3.4% increase in April, it’s expected that the COLA will be around 3.2% for next year.

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How Social Security Increases Work

Mary Johnson, a retired Social Security and Medicare analyst, believes the COLA could be about 3.2%. This is higher than the average increase of 2.6% over the years.

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For example, in 2023, there was an 8.7% increase to help with the effects of COVID-19. However, even this high increase did not fully cover the gap between inflation and the resources retirees need.

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Impact on Retirees

A 3.2% increase in benefits sounds good, but it might not be enough. Inflation has been so high that even recent increases have not kept up. In some cases, these increases can push people into a higher tax bracket or cause them to pay more taxes, especially in states where Social Security income is taxed at both the federal and state levels. This makes life even harder for retirees.

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Other Groups Affected by Inflation

Not only retirees are struggling. Other groups, such as low-income families, are also finding it hard to keep up with rising costs. Essentials like food and shelter are becoming more expensive without a corresponding increase in paychecks.

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Gasoline prices have also gone up, which affects many people who rely on cars. Housing and gasoline together account for over 70% of the monthly increase in inflation.

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While the exact COLA for Social Security benefits will be announced in October, it is likely to be higher than in previous years due to ongoing inflation. This increase is crucial for helping retirees and other vulnerable groups manage their expenses in these challenging times.

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What is COLA?

COLA stands for Cost of Living Adjustment. It’s an increase in Social Security benefits to help keep up with inflation.

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Why is there a COLA increase expected for next year?

Due to high inflation, living costs have increased, prompting the SSA to adjust benefits accordingly.

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How is the COLA calculated?

The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August, and September.

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How does inflation affect retirees?

Inflation increases living costs, making it harder for retirees to manage their expenses with fixed incomes.

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When will the new COLA be announced?

The SSA will announce the new COLA in mid-October.

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An up-and-coming tax attorney passionate about educating readers on tax planning and mitigation strategies. Juilia articles offer practical advice and actionable tips to help individuals and businesses navigate the intricacies of tax law with confidence.
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