New York, New York – November 2023: The Social Security Administration recently announced a 3.2% cost-of-living adjustment (COLA) increase for 2024, down from the 8.7% bump retirees saw this year. While still a welcome uptick for those relying on Social Security, the lower COLA points toward cooling inflation after a historically high spike–Social Security recipients saw the highest COLA in 40 years in 2023 due to soaring inflation through 2022. The 2024 COLA of 3.2% indicates inflation may be cooling, though it remains significantly above the Federal Reserve’s 2% target.
The COLA determines the annual increase in Social Security benefits to account for inflation. It is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures monthly changes in the prices paid for everyday goods and services. As inflation rises, these benefits increase proportionally to help retirees maintain their purchasing power.
According to an annual poll by Gallup, in 2023, 88% of respondents said they rely on Social Security payments as a source of income, with 59% reporting it is a major source of their total earnings. With so many Americans reliant upon their Social Security earnings, any increase is beneficial.
“While a lower COLA indicates easing inflation rates, other costs may offset increased Social Security payments,” says Danielle Browne, founder and managing attorney at The Browne Firm.
Medicare Part B premiums and deductibles, for example, are both increasing by 6% in 2024 despite slower COLA growth.
“Consequently, retirees should review all streams of income annually and adjust budgets accordingly, especially regarding healthcare costs, housing, and taxes.” the attorney adds.
While most retirees who participated in the Gallup poll said Social Security benefits are a crucial element in their monthly income, only 34% of non-retirees in the poll anticipated that they would depend on Social Security payments as a major source of income to maintain their lifestyle in retirement.
Thus, when creating retirement income and estate plans, The Browne Firm’s estate planning lawyers encourage individuals and couples to factor in COLA adjustments to Social Security benefits. Furthermore, strategies like delaying Social Security until age 70 allow beneficiaries to lock in a higher base payment that rises yearly with COLA.
With so much uncertainty in inflation, it can be challenging to decide how best to use these new funds. In light of these considerations, The Browne Firm shares these tips to help you determine the best way to utilize your 2024 COLA earnings.
5 Ways to Make the Most of the 2024 COLA Increase
1. Offset Rising Healthcare Costs
It’s wise to allocate some of the extra COLA funds to pay Medicare premiums, long-term care insurance bills, and out-of-pocket medical expenses. With healthcare costs outpacing inflation, even a few extra dollars saved to apply toward premiums or medical bills ensures you have adequate coverage for the year ahead.
2. Bolster Emergency Savings
Allocating the COLA increase into your emergency fund is a prudent way to cover unexpected costs down the road. Bulking up your rainy day funds will protect you in the event of emergency home repairs, medical needs, or other unplanned bills.
3. Pay Down Debts
Using the additional Social Security earnings to pay down debts such as credit cards, auto loans, or personal loans can significantly reduce interest expenses. Every extra dollar put toward principal rather than interest saves money over time. Aim to pay down your high-interest debts first in order to yield the most savings.
4. Increase Retirement Contributions
Investing COLA earnings in retirement accounts like 401(k)s and IRAs allows the funds to grow tax-deferred. And for those over 50, making catch-up contributions accelerates retirement savings. The additional compounded growth over time extends your retirement income.
5. Reward Yourself
Finally, it’s perfectly acceptable to enjoy a share of the COLA increase for something you’ve put off, like a vacation, new car, home renovation, or other personal purchase. Splurging in moderation celebrates the financial diligence and discipline you have upheld over the years.
About The Browne Firm
Under the leadership of accomplished New York estate planning attorney Danielle Browne, The Browne Firm in New York provides practical legal guidance to empower clients and safeguard their investments. With a mission to assist creative professionals, entrepreneurs, and business owners, the firm offers cost-effective solutions tailored to each client’s needs.
Strategically located in New York City, The Browne Firm leverages their comprehensive experience across key practice areas, including business law, intellectual property, estate planning, elder law, and probate. By crafting customized legal strategies for clients, the firm aims to contribute to building generational wealth for families and businesses as they grow and evolve.