In contrast to the previous COLA adjustments in 2022 and 2023, which were 8.7% and 3.2%, respectively, beneficiaries of Social Security will have a 3.2% COLA adjustment in 2024. The COLA adjustment for the next year will be equal to the COLA adjustment for 2023 as inflation has begun to stabilize. Some Social Security users may gain, but others may be shifted into an elevated tax bracket commencing in 2019.
COLA Adjustment Integrated Into Social Security System
According to Reverse Mortgage Daily, an estimated 66 million Social Security recipients and 7.5 million recipients of Supplemental Security Income (SSI) will begin receiving higher payouts in January 2024. Some beneficiaries of the SSI program also get Social Security payouts. Since the beginning of the program, the COLA adjustment that is incorporated into the system of Social Security has aimed to keep seniors out of poverty. The most recent COLA adjustment of 3.2% is much higher than the 2.6% average COLA over the previous 20 years.
Although beneficiaries of the program will appreciate a COLA of the specified magnitude, the entire rise is insufficient to keep pace with the inflation rate expected in the American economy in 2023. This is supported by the most recent statistics from the U.S. Bureau of Labour Statistics, which shows that the CPI-U (consumer price index for all urban consumers) increased 3.7% from September of last year to September. The combined 15.1% increase in Social Security benefits from 2022 to 2024 will also make certain seniors liable for taxes on Federal income for the very first time.
ThinkAdvisor met with Mary Johnson, the Social Security & Medicare policy analyst with The Senior Citizen League. In a conversation with ThinkAdvisor, Johnson pointed out that there is also a lot of worry about what the relatively low 2024 COLA would mean for the taxes that seniors pay on national government benefits. We anticipate that more beneficiaries will be required to pay federal revenues taxes on their benefits from Social Security for the initial time in the forthcoming 2024 tax season because those who receive Social Security benefits received an even greater COLA of 8.7% in 2023, according to Johnson. Up to 26% of respondents who had been receiving Social Security for over three years said they would be paying taxes on a part of their payments for the very first time in the 2023 tax year, or for the tax year 2022.
Financial Problem Due To Excessive Inflation
If income bands are not modified, this additional COLA rise in 2024 may cause even more seniors to exceed critical income levels. A lot of seniors who are already there on fixed incomes and in need of money due to excessive inflation could face a potential financial problem as a result of this. Consider the fact that, even though the overall rate of inflation has decreased, 68% of older individuals said that their daily-basis household expenses are still at least 10% more than they were a year ago. The anticipated rise in taxes will mostly be attributable to the fact that 2023 & 2022 had some of the biggest Social Security COLA increases in history, along with a further 3.2% increase in 2024. Seniors could anticipate rising tax invoices in the future if Congress does not take action.