There’s also a third potential whammy to consider.
A little over nine months ago, retirees learned that they’d soon receive the biggest Social Security increase in four decades. The amount of the next increase won’t be announced until mid-October.
Don’t count on nearly as big of a windfall this time around, though. Here is a double whammy that could reduce your Social Security increase in 2024.
1. Lower inflation
By far, the biggest reason your Social Security increase could be lower next year is that inflation appears to be moderating. Based on the latest projections, benefits could increase by around 3% in 2024 compared to 8.7% in 2023.
The Social Security Administration (SSA) calculates cost-of-living adjustments (COLAs) using an inflation metric called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). So far in 2023, the CPI-W hasn’t increased nearly as much year over year as it did in 2022.
This trend is due in large part to actions taken by the Federal Reserve. Beginning last year, the Fed aggressively raised interest rates to try to bring down inflation. It recently bumped up rates by another 0.25% to the highest level in 22 years.
But it’s still too soon to know for sure what the next COLA will be. The SSA only compares the average CPI-W for the third quarter against the average from the same period in the previous year. We only have one month of inflation data available for Q3 right now.
2. Higher Medicare Part B premiums
The actual amount that your monthly Social Security payment will increase next year isn’t dependent solely on the Social Security COLA. There’s another factor to consider: Medicare Part B premiums.
Anyone who received Social Security benefits and is also enrolled in Medicare Part B will automatically have their Part B premiums reduced from their monthly Social Security payments. If those premiums increase, they can partially offset the benefits increase from the COLA.
Retirees enjoyed an unusual Part B premium decrease last year. This nice bonus was the result of Medicare deciding against full coverage of Biogen‘s Alzheimer’s disease drug Aduhelm.
But Medicare Part B premiums will almost certainly increase in 2024. There isn’t a similar scenario to last year when Medicare first assumed it would spend a lot more on Aduhelm, set Part B premiums accordingly, then learned it wouldn’t spend so much on the drug.
Furthermore, Biogen and its partner, Eisai, now market a new Alzheimer’s disease drug, Leqembi. Medicare will broadly cover this drug, which is priced at around $26,500 for a year of treatment. Look for this lofty price tag to push Part B premiums higher.
A triple whammy?
There could even be sort of a triple whammy in store for retirees. The CPI-W metric that SSA uses has been criticized in the past for not accurately capturing all of the costs that seniors incur. This could mean that retirees’ actual costs will go up more than their Social Security benefits will.
Is there any good news for retirees? Yes. Slowing inflation — even if the metric used isn’t perfect — is better than skyrocketing inflation.
Also, many retirees either know someone who suffers from Alzheimer’s disease or have it themselves. The availability of a new drug that appears to slow the cognitive decline from the horrible disease is encouraging despite the likelihood of higher Part B premiums because of it.
