Social Security is the largest source of retirement income for U.S. seniors. Last year, it paid pension benefits to roughly 70.3 million people, as well as to roughly 8 million Supplemental Security Income recipients. The COLA adjustment is meant to track the increase in the overall price of goods and services, although many advocates say it should be more generous to reflect changes in seniors’ living expenses.
The smaller increase in benefits reflects the easing of inflation in the U.S. economy after two years of significant increases. Social Security benefits rose by 8.7 percent in 2023, the largest increase in four decades, after inflation spiked by a similar amount in 2022. The year before that, SSA increased the program’s benefits by 5.9 percent.
“The cost-of-living adjustment is an extremely important feature of Social Security,” said Nancy Altman, the executive director of Social Security Works, which opposes efforts to cut the program. “But people should not think of this as an increase — it’s intended to make sure seniors and people with disabilities can tread water, and stay above the surface, because without it they’d be drowning.”
The Federal Reserve’s campaign to hike interest rates has helped restrain price increases. Inflation has stayed at around 3 percent on a yearly basis in the most recent reports, but it rose 3.7 percent in September over the year before.
The Social Security benefit increases take effect in the new year. The COLA is set by price inflation in the third quarter of each year.
Anqi Chen, the assistant director of savings research at the Center for Retirement Research at Boston College, previously said that the automatic adjustment is particularly important because much of the other sources of seniors’ retirement income does not adjust for inflation. About half of the retirement income of middle-class retirees comes from Social Security, Chen said, but much of the rest comes from 401(K) and IRA disbursements — which depend on investment returns.
Conservatives have criticized the higher payments and argued that Washington should use a less-generous formula to adjust for inflation.
“Social Security is using an outdated measure that’s driving up benefit costs,” said Romina Boccia, the director of budget and entitlement policy at the Cato Institute, a libertarian think tank, in a statement during the last year’s COLA adjustment. “Reform is long overdue.”
