The Social Security Administration this week announced that 2024 cost-of-living adjustment for payments will be 3.2 percent, coming well below the 2023 level.

The COLA applies to individuals who get retirement or disability benefits. The increase was lower than last year's, which was 8.7 percent, due to cooling inflation, which was cited by the Social Security Administration before making its adjustment.

The Social Security program pays roughly $1.4 trillion in benefits to more than 71 million people each year, including low-income individuals with disabilities. The government uses taxes from working people to pay benefits to people who have already retired, people who are disabled, the survivors of workers who have died, and dependents of beneficiaries.

Why?

The annual Social Security payment change is based on Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in July, August, and September. Last month, the CPI index remained at 3.7 percent, and the index for urban wage earners was 3.6 percent, said the Bureau of Labor Statistics (BLS) on Thursday.

“Seniors tend to spend more on medical care in general, including some out of pocket expenses like prescription drug costs, that can be very significant,” Mark Hamrick, senior economic analyst at Bankrate, told The Associated Press. “Of course, food, shelter, and energy costs are all still elevated. Those are things most people cannot go without.”

While the 3.2 percent raise is smaller than last year, it is still greater than the 2.6 average over the past 20 years, said Senior Citizens League policy analyst Mary Johnson.

The annual percentage increases over the past five years were 2.8 percent, 1.6 percent, 1.3 percent, 5.9 percent, and 8.7 percent in 2018, 2019, 2020, 2021, and 2022, respectively, according to the Social Security Administration (SSA).

Since 1975, the COLA for Social Security beneficiaries has been based on the consumer price index, which the BLS describes as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”

When Does It Start?

The adjusted payments will go out starting in January 2024. The SSA has released its payment schedule for next year.

How Much?

The COLA is intended to help meet higher prices for food, fuel, and other goods and services. The average recipient will see an increase of about $54 per month, according to government estimates.

In August, the average monthly payment for Social Security beneficiaries stood at $1,705.79, according to SSA. With a 3.2 percent COLA, it would mean an extra $54.58 for each month, according to estimates.

Ms. Johnson estimated that it would add $57 to the average retiree payment. “That’s maybe not going to cover a rent increase,” she stated.

Social Security is financed by payroll taxes collected from workers and their employers. The maximum amount of earnings subject to Social Security payroll taxes for 2023 is $160,200, up from $147,000 in 2022.

To determine what amount of Social Security you’ll receive, the government calculates a percentage of your highest wages from your top 35 years of earning, factoring in when you choose to start receiving benefits.

“Compared to last year’s 8.7 percent increase, this is going to feel small and the perception is that its not keeping up with the inflation and the higher costs that retirees are still seeing,” said Martha Shedden, president of the National Association of Registered Social Security Analysts.

Medicare?

Also Thursday, the Centers for Medicare and Medicaid Services announced that the standard Medicare Part B premium that is paid by most beneficiaries will increase by $9.80 per month from $164.90 in 2023 to $174.70 in 2024.

Kathleen Romig, director of Social Security and Disability Policy at the Center on Budget and Policy Priorities, said increased Medicare premiums will “absorb a disproportionate share of the COLA for most people.”

“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,” she said, adding that most people will still get higher benefit checks overall.

Too Little?

Ms. Johnson said that many seniors have reported that they're falling behind, despite the 8.7 percent increase last year.

"What we are hearing from our surveys is the household budgets went up by more than the amount of their COLA ... that is what is worrying people today," she said. "We still have inflation with us."

Because the CPI-W assumes that urban "workers spend about 7 percent of their income on health care," it's a problem for retirees.  "Our surveys have found that older adults spend 12 percent to16 percent, even up to 24 percent on health care," Ms. Johnson noted.

Meanwhile, the AARP interest group representing older Americans called on Congress to overhaul the Social Security program amid reports indicating that it may run out of money in the coming years.

"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," AARP CEO Jo Ann Jenkins said in a statement Thursday. "Americans work hard to earn their Social Security, and it's only fair for them to get the money they deserve."

The Associated Press contributed to this report.