As the economic pendulum swings, the baby boomer generation, born between 1946 and 1964, is set to feel the pinch. The Social Security Cost of Living Adjustment (COLA) expected in 2024 is predicted to be significantly smaller due to reduced inflation. This reduction impacts boomers more harshly as they have not only contributed more to the Social Security fund but also depend on it heavily compared to other retired recipients.
The Senior Citizen’s League forecasts next year’s COLA increase to be a mere 3.1%, a sharp contrast to this year’s 8.7% increase, marking the largest gain in four decades. The COLA is determined by the inflation rate in the third quarter of the previous year. Due to rate modifications by the U.S. Federal Reserve, inflation has slowed in recent months. However, the aftermath of previous rapid inflation has left many in debt, struggling to regain financial stability. The reduced COLA increase could further complicate retirees’ efforts to pay off accumulated debt amid these inflationary times.
Boomers to Face Heaviest Impact of Social Security COLA Reductions in 2024
The Social Security Cost of Living Adjustment (COLA) may not prove to be as beneficial for Americans in 2024 due to curtailed inflation. The baby boomer generation, born between 1946 and 1964, some of whom are already receiving Social Security benefits, are expected to bear the brunt of this situation. The impact on boomers could be more severe than on the Greatest Generation as they have contributed more towards Social Security and rely more heavily on it.
Predicted Decrease in COLA Increases
According to predictions by The Senior Citizen’s League, the COLA increase might drop to merely 3.1% next year, a significant decrease from this year’s 8.7% – the highest increase seen in forty years. The COLA is determined by the inflation rates in the third quarter of the preceding year. The U.S. Federal Reserve’s recent rate adjustments have resulted in a slowdown in inflation.
Effects of Reduced Inflation on Retirees
However, the high inflation rates in the past have left many people in debt, struggling to achieve financial stability. A reduction in the COLA increase could potentially make it more challenging for retirees to pay off debt accumulated during periods of high inflation. Furthermore, COLA increases do not always align with the rate of inflation.
Disparity Between Social Security Benefits and Cost of Living
From January 2000 to February 2023, Social Security benefits have only increased by an average of 3.4% annually, reaching a total of 78%. In contrast, the average annual increase in the cost of food, utilities, and other goods and services has been 6.2%, totaling 141.4%, according to The Senior Citizens League’s report citing data from the U.S. Bureau of Labor Statistics.
Financial Impact on Different Generations
The reduced COLA increases may not significantly impact the Silent Generation, whose median income ranges from $28,000 to $38,000, and who often have pensions to supplement their retirement. However, the baby boomer generation, with projected median earnings of $41,000 to $44,000, might face a larger impact due to their greater reliance on Social Security benefits and the lack of pension support.
The Need for Alternative Income Sources
Although a 3.1% increase in Social Security is still an increase, it is unlikely to match the inflation rate. Boomers who rely heavily on Social Security may need to explore other income sources, such as investments, to make ends meet in these challenging times.
Takeaways
The looming reduction in Social Security COLA increases is a wake-up call for all, especially the baby boomers. This situation emphasizes the importance of having diverse income sources and well-planned retirement strategies. Even as Social Security remains a significant component of retirement income, relying solely on it may not be a sustainable approach in the face of changing economic conditions.
