Social Security COLA is Keeping Up with Inflation, or is It? Brogan Financial

Inflation in the United States has been falling in 2023 — hitting its lowest level in more than two years in June 1. However, when things cost more, that leaves less for savings. The 2023 Retirement Confidence Survey2 found that two-thirds of retirees worry that the increasing cost of living will make it harder for them to save money. In addition, 58% are concerned they will have to make substantial cuts to their spending. Inflation impacts everyone, especially those living on a fixed income in retirement. Is Social Security keeping up with the rate of inflation?

 2024 COLA

The latest Social Security cost-of-living adjustment (COLA) estimate for 2024 is going to balance out the annual inflation rate over the past year. For the 12 months ending in September 2023, the annual inflation rate for the United States was 3.7%, according to U.S. Labor Department data published on Oct. 12, 2023.3 The Social Security Administration recently announced the COLA for 2024 will be 3.2%. For the more than 71 million Americans receiving Social Security payments that is an average of about $50 more per month.4

Each year, the Social Security Administration determines the cost-of-living adjustment for Social Security payments. The COLA is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of the previous year to the third quarter of the current year.4

Since 1975, Social Security’s general benefit increases have been based on increases in the cost of living, as measured by the Consumer Price Index. The Social Security Administration works to keep benefits in line with the increases in the costs of goods, services and living expenses. However, even those COLA increases may feel like they aren’t enough to make your dollars go as far as they used to.

Are You Leaving Yourself Exposed to Inflation Risk?

Inflation is always present whether at the Federal Reserve’s target of 2% or the higher inflation rates of the past few years. Protecting your savings against inflationary pressures as you are nearing or are in retirement is crucial. As your buying powder declines, high inflation can wreak havoc on your nest egg. If the cost of goods increases every year, that means the power of every dollar will decrease over time. For retirees who need to make their money last for the rest of their lives, inflation is an important risk to mitigate against.

What Can You Do?

Planning and maintaining your hard-earned savings can be a complicated task. Considering the effects of inflation is a key part of making sure the lifestyle you saved for lasts throughout your retirement. Maximizing your Social Security benefit, creating additional retirement income, protecting your savings from inflation, and mitigating market risk are all part of a solid financial plan. Schedule your complimentary strategy session with us as the first step.


1 https://www.bls.gov/opub/ted/2023/consumer-prices-up-3-0-percent-over-the-year-ended-june-2023.htm
2 https://www.ebri.org/docs/default-source/rcs/2023-rcs/2023-rcs-short-report.pdf
3 https://www.usinflationcalculator.com/inflation/current-inflation-rates/
4 https://www.ssa.gov/cola/