This is what the average Social Security benefit should look like in 2024
More than 66 million people took home Social Security benefits in June, 49.4 million of whom were retirees. For the lion's share of these retirees, Social Security income is a real necessity.For the past 22 years, national pollster Gallup has polled retirees to gauge their reliance on this important program.
Each year, between 80% and 90% of respondents reported that their monthly check from America's Best Retirement Plan was a "major" or "minor" source of income. In other words, the senior poverty rate would be many times higher if Social Security did not exist. For all Social Security recipients — and especially retirees — the biggest day of the year is now less than two months away.
On October 12, 2023, the US Bureau of Labor Statistics (BLS) will release its September inflation report, providing the final piece of the puzzle needed to calculate the annual Social Security Cost of Living Adjustment (COLA). A COLA is a "raise" to beneficiaries who receive most years that matches inflation. In effect, this is a mechanism that seeks to ensure that program beneficiaries do not lose purchasing power over time.
Although I previously described the steps to calculate the COLA in much more detail, the simple gist is that the average value of the Consumer Price Index for Urban Wage and Administrative Workers (CPI-W) from the third quarter (July September) of the current year is compared to the average value of the CPI- W from the third quarter of the previous year. If the average CPI-W reading for the third quarter increases year-over-year, inflation has occurred and beneficiaries must "step up."
Note that I put "increase" in quotation marks to reflect that the increase in Social Security benefits is designed to match, not outpace, the rate of U.S. inflation as measured by the CPI-W index. This is different from the actual raise you would receive from an employer, which might actually beat the rate of inflation.
In 2023, beneficiaries received a historically large increase in benefits of 8.7%, reflecting a huge increase in the US inflation rate. The average retired worker saw their monthly checks increase by $146 per month, the largest year-over-year jump in nominal dollar terms since Social Security was created.Next year, Social Security's COLA looks set to be much more modest.This is what the average Social Security benefit should look like in 2024
Based on the July inflation report from the BLS, the overall U.S. inflation rate, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), has decreased significantly. The CPI-U showed an unadjusted increase of 3.2% over the past 12 months.
However, core inflation remained stubbornly high at 4.7%. Core inflation removes the two most volatile components—food and energy spending—from the equation, providing a more consistent picture of price movements for a large basket of important goods and services. Based on resilient core inflation, The Senior Citizens League (TSCL), a nonpartisan advocacy group for seniors, estimates the 2024 COLA at 3%. What would a 3% COLA actually look like for the average Social Security recipient and the key group that makes up America's top program? Let's take a closer look.
If you include all 66.63 million Social Security recipients in June 2023, the average pay was $1,701.62. If we arbitrarily use that figure as the base from which to add the 3% COLA, the average Social Security benefit under the program should be $1,752.67 in 2024, about $51 more than today.
While the percentage of the "increase" passed on to these 66.63 million beneficiaries is identical, the nominal dollar increase may vary by category. For example, the average retiree took home $1,837.29 in June. A 3% COLA set at that number would raise the average retiree benefit to $1,892.41 in 2024. That would be about $55 more per month for retirees.
By comparison, roughly 7.5 million workers with disabilities took home an average of $1,486.42 in June 2023, while 5.8 million total survivors took home an average of $1,451.85. A 3% COLA would increase the average paycheck in 2024 for disabled workers to $1,531.01 (just under $45 more per month), while survivors would see their average benefit check increase in 2024 to $1,495.41, or almost $44 extra each month.
In the ever-changing retirement planning environment, it's essential to understand the projected average Social Security benefit for 2024. As we prepare to enter the new year, let's dive into the key factors that will affect this benefit and what you can expect. Social Security Benefit 2024 Average Benefit Retirement Planning
Expected changes and factors affecting average benefit
Several factors contribute to determining the average Social Security benefit, including inflation, changes in the Average Wage Index (AWI), and shifts in the Full Retirement Age (FRA). Let's break down how each of these factors can affect benefits in 2024:
Inflation: Cost-of-living adjustments (COLAs) play a significant role in shaping Social Security benefits. These annual adjustments are designed to keep pace with inflation and ensure that the purchasing power of beneficiaries remains relatively stable. While we cannot predict the exact COLA for 2024, historical data suggests that it is critical to consider this factor when estimating your benefit.
Average Wage Index (AWI): The AWI reflects changes in average wages and is used to index earnings for purposes of calculating Social Security benefits. As wages rise, so does AWI. If wage growth continues as expected, the average benefit amount in 2024 may be affected by this upward trend. Full Retirement Age (FRA): FRA, the age at which you can claim your full Social Security benefit without any reduction, increases gradually . The aim of this change is to accommodate longer life expectancy and is a crucial element to consider when assessing the expected benefit. Knowing your FRA and deciding when to claim benefits can make a big difference in the amount you receive.
How to estimate your Social Security benefit in 2024
To estimate your potential Social Security benefits in 2024, it's essential to consider your earnings history, projected COLA, and projected filing age. Use online Social Security calculators to get a rough estimate, but remember that these tools are based on current laws and regulations, so any legislative changes may affect the final calculation. Social Security Calculator, Benefit Estimate, Retirement Age
As 2024 approaches, being informed about the projected average Social Security benefit is critical to retirement planning. Be aware of factors that can affect this benefit, such as inflation, the average wage index and changes in the full retirement age. Use online calculators to estimate your benefit based on your unique circumstances. By taking these steps, you will be better equipped to make informed decisions about your retirement income and financial security. Retirement Income, Financial Security, Retirement Planning, Social Security Forecasting
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