Social Security COLA: How Much Does an Increase Actually Affect Your Checks?

01/07/2024

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Social Security’s cost-of-living adjustment (COLA) for 2024 is 3.2%, but that doesn’t necessarily mean your check is exactly 3.2% more than a year ago.

Because of a complicated formula the Social Security Administration uses to determine benefits, your increase might be higher or lower.

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As previously reported by GOBankingRates, the COLA is applied to your primary insurance amount (PIA) rather than your current benefit — and the two are not always the same. The PIA is the benefit you would get if you elect to begin receiving retirement benefits at your full retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.

The PIA formula is based on the total of three different percentages of portions of average indexed monthly earnings, the SSA notes on its website. The portions depend on the year a recipient reached age 62, became disabled before age 62 or died before reaching age 62.

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The age you start collecting Social Security retirement benefits is an important consideration in terms of your COLA. Not everyone waits until their full retirement age — currently 66 or 67, depending on when you were born — to start collecting. If you wait until your FRA to claim your benefits, your PIA and monthly payment might be the same.

However, if you claim your benefits at a different age, the SSA runs another calculation to adjust the PIA up or down for those who claim early or late. People who claim benefits before their FRA typically get lower payments, while those who wait until they are 70 get the highest possible payment.

Medicare Part B premiums can also affect your COLA. When premiums go down, your COLA could be higher. When premiums go up, your COLA could go down — and that’s what’s happening this year.

Different federal employees receive different adjustments as well. Those in the Civil Service Retirement System will receive the full 2024 COLA, while those in the Federal Employee Retirement System will get less.

These factors partly explain why average Social Security payments this year reflect a different increase than you might expect from the 3.2% COLA. In May 2024, the average retirement benefit was $1,867.83, according to the SSA. That was up from $1,787.31 the previous year — a gain of 4.5% rather than 3.2%.

Although the annual COLA is supposed to help seniors deal with rising inflation, it doesn’t always provide enough help in that regard. In a May press briefing, The Senior Citizens League showed that between January 2000 and February 2023, the aggregate COLA increased by 78%, or an average of 3.4% per year. However, goods and services commonly purchased by seniors had collectively risen in price by 141.4%, or an average of 6.2% per year, over the same period.

A survey conducted last year by public interest law firm Atticus found that nearly two-thirds (62%) of seniors collecting Social Security benefits were dissatisfied with the 3.2% COLA for 2024.

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