Social Security COLA falls far short of 2024 prices, study finds

As the new year begins, retirees are getting a boost to their Social Security checks. But new data shows it's not nearly enough to keep up with this year's prices.

The 2024 cost-of-living adjustment (COLA) for Social Security, which kicks in this month, is an additional 3.2%. But according to new research from The Senior Citizens League, two-thirds of American retirees have seen their expenses rise by about 10% since December 2023 — more than three times the COLA.

"I think I characterize our mood as a sober start to the New Year," said Mary Johnson, a Social Security and Medicare analyst at the League. "Living on retirement income is not going to be for the faint of heart."

Historically, the new COLA is relatively generous — it's more than the average increase of the past 20 years, which was 2.6%. And it comes at a time when inflation is falling — in November 2023, the consumer price index only rose by 3.1%, down from 9.1% in June 2022.

But inflation is sticky, and prices remain elevated even as their rate of increase slows. The Senior Citizens League tracked the growth of a number of core expenses for seniors and found that the COLA was clearly falling behind.

Car insurance, for example, rose by 19.2% from December 2022 to December 2023 — six times the COLA. Outpatient hospital services jumped by 7.3% — 2.3 times the COLA. And homeowners' costs swelled by 6.7% — 2.1 times the COLA.

On average, this year's retirement benefits will grow by a little more than $50 per month, the Social Security Administration has estimated. In a typical retiree's budget, Johnson said, that barely makes a dent.

"I'm sure many are struggling to quell a sense of drowning over just how far they can stretch an extra $50 or so," she said.

Another rising expense is the cost of Medicare. The standard monthly premium for Part B, which covers outpatient services, is $9.80 higher in 2024 — about a 6% increase from last year. Part B premiums, it's worth noting, are automatically deducted from Social Security checks.

And as an unintended side effect of the Inflation Reduction Act, Part D is getting more expensive, too. Premiums for Part D, which covers prescription drugs, are set to jump by an average of 35% in 2024, according to the healthcare researcher HealthView Services.

All in all, 2024 is shaping up to be a very expensive year for seniors, and Social Security — though more generous than last year — is not keeping pace with prices. But as many financial advisors remind their clients, the program is only designed to replace about 40% of one's working income anyway.

"It's crucial to acknowledge that Social Security was never intended to be the sole source of income for retirees," said Julie Bray, president of GW Financial in Reno, Nevada. "It serves as a valuable safety net, but individuals should ideally have supplemental retirement plans in place."

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Nevertheless, if Social Security lags behind inflation, that portion of a client's retirement income suffers. To cope, Bray suggests a variety of ways to reduce expenses or increase income.

"For those struggling to pay bills amidst this year's higher cost of living, we often explore creative solutions, such as reevaluating discretionary spending, exploring potential part-time employment opportunities or considering downsizing living arrangements," Bray said.

Other advisors take direct aim at the Medicare piece of the puzzle. Greg Giardino, a CFP at Atlas Fiduciary Financial in Oakland, New Jersey, urges his clients to review their Part D options during the open enrollment period from October to December.

"Retirees need to be vigilant in examining their expenses," Giardino said. "Making sure your expenses align with your values and needs — and removing or cutting those expenses that don't — can help bolster your savings."