Hey there Wellthi fam, you may still be a long way from retirement, but it’s important for you to stay informed about your Social Security benefits. It shouldn’t be your only source of retirement income, but it can round out your savings so it’s a good idea to stay on top of things.
You may have heard about something called the Cost of Living Adjustment (COLA) recently, because this year saw the biggest increase in 40 years, 8.7%. A new adjustment is coming in 2024, and while we don’t have the exact numbers just yet, we can make some educated projections based on recent inflation trends.
But first, let’s set the record straight. The COLA is not determined by the President or Congress. Since 1975, it has been automatically linked to inflation, specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures the increase in prices experienced by workers and serves as the basis for calculating the COLA.
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Now, let’s dive into the projections. We’ll explore three scenarios: low, mid, and high inflation. In the low inflation scenario, where prices remain stagnant through September, we anticipate a 2.2% COLA for 2024. However, as we approach September and observe positive inflation, this number is likely to increase.
The mid-line scenario is the most probable one. If inflation continues at a moderate pace, retirees can expect a COLA of around 3% in 2024. This means a little extra in your pocket to cover rising expenses.
In the high inflation scenario, with a 0.4% monthly increase in the CPI-W through September, we could see a 3.5% COLA for 2024. While this scenario is not out of the question, it would require sustained high inflation levels.
The differences between these scenarios may seem small, but they can have an impact on your monthly benefits. For example, a 2.2% COLA versus a 3.5% COLA could mean a difference of about $25 per month on a $2,000 benefit or around $40 per month on a $3,000 benefit.
It’s important to note that the COLA also takes into account the increase in Medicare premiums. Medicare announces its premiums around the same time as the Social Security COLA. While a portion of the COLA may go toward higher healthcare costs, you’ll still receive the full benefit of the COLA.
We understand that you may be rooting for a higher COLA, but here’s the twist: a lower COLA can actually be better for retirees. Lower inflation means your savings and investments outside of Social Security will hold their value longer. So, in a way, you want a lower COLA to coincide with lower expenses.
Some people speculate that the government under-reports inflation. Even if that were the case, you’d still prefer lower inflation and a lower COLA. It’s all about preserving the purchasing power of your savings and investments.
At Wellthi, we’re here to support you on your retirement journey. Our social savings app allows you to set and achieve financial goals with your friends, making the process even more enjoyable. So, as we await the official announcement of the 2024 Social Security COLA, remember to stay informed, plan wisely, and make the most of your retirement years.
We’ll keep you updated on any developments, so stay tuned for more financial insights and inspiration. Together, let’s embrace financial wellness and create a future where your dreams can thrive. Your financial well-being matters, and we’re here to help you every step of the way.
- Social Security Administration COLA: A direct link to the Social Security Administration’s page on COLA where readers can learn more about it.
- Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W): This link gives an in-depth explanation of the CPI-W and its implications.
- Medicare Premiums: This will help readers understand how Medicare premiums could potentially affect their COLA.
- Inflation Calculator: Useful tool for understanding how inflation could affect purchasing power.
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