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Social Security is the largest source of retirement income for U.S. seniors. The new benefits will go to more than 71 million Americans, including pensions to 66 million people and roughly 7.5 million Supplemental Security Income recipients, according to the Social Security Administration.
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.”
Some advocates said that the 3.2 percent adjustment is insufficient, noting that the adjustment is based on a price index based on the spending of “urban wage earners.”
“How is that a reasonable formula for seniors? … Older Americans spend more than other groups on expenses like housing, long-term care, and medical services,” Max Richtman, the president and CEO of the National Committee to Preserve Social Security and Medicare, said in a statement. Some Democrats have pushed for instead using a price index that more directly measures seniors’ costs, and would lead to more generous benefit increases.
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.
Inflation will also change Social Security taxes. Currently, Social Security only levies taxes on the first $160,200 in earnings. The adjustments will raise that threshold to $168,600, according to the Social Security Administration.
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.”
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