If you rely on Social Security SSI and SSDI, you can expect a 3.2% social security increase beginning in 2024. Although it is not as high as the 8.7% cost of living increase received for 2023, it will still boost your Social Security benefits by about $50 each month, depending on your full retirement age and current monthly Social Security earnings.
What Is the Cost-of-Living Adjustment (COLA)?
If you receive Social Security benefits, you’re likely familiar with the cost-of-living adjustments (COLA) that impact your monthly benefit amount each year. Prior to 1975, yearly cost of living increases were set by legislation. Since 1975, COLAs have been based on yearly cost of living expenses for all Social Security beneficiaries, including retirees, survivors, and those on disability. In 1975, COLA was set at 8.0%. Since then, there have been increases and decreases in wages and the costs of goods and services. In Illinois and other states, the economy and the cost of housing, food, household goods, and services play a big part in the average social security increase for recipients.
How Does COLA Work?
COLA is reliant on two components: 1- the CPI-W and 2- the employer-contracted COLA percentage. CPI determines the rate of inflation, and those figures are compared from year to year. When consumer prices rise, there is an increase in the yearly COLA percentage. When consumer prices and inflation fall, or if inflation has not been high enough to substantiate a COLA increase, SSD payments remain flat and there is no social security increase. Generally, if there is no CPI-W increase, there is no COLA increase. If there is a social security increase, it is usually a small percentage.
Importance of COLA
Cost-of-living adjustments allow employees, retirees, and people living on fixed incomes to afford housing, goods and services, and taxes as prices go up over time. This is especially important for aging seniors and people living with disabilities. Some cost-of-living adjustments are temporary, such as those for military members on short-term assignments in expensive regions. Companies and businesses also use the cost-of-living index to determine how much to pay an employee who’s relocating for work to another state, where living expenses are much higher. An employee relocating from Houston to Chicago may pay significantly more for housing, food, and goods and services in Chicago than in Texas. Cost-of-living adjustments may also be made for the following:
- Government employee salaries
- Private-sector employee salary increases
- Retirement benefits like Social Security and Supplemental Security income
- Union member contracts for U.S. Postal Service employees
- Military contractors stationed in a foreign country
- Military families with an active-duty service member
Past COLA Increases in Illinois
Over the past 10 years, COLA increases in Illinois have ranged from a low of 1.5% in 2013 and 1.3% in 2020 to a high of 2.8% in 2018 and 8.7% in 2022. In 2021, AARP Illinois State Director, Bob Gallo, applauded the 5.9 % COLA increase in Social Security benefits. It was the largest increase in over 10 years for Illinois residents.
Mr. Gallo pointed out that the 5.9 % increase was an essential part of security for almost 3 million Social Security beneficiaries living in Illinois. He noted that this increase was necessary to support 46.6 % of Illinois beneficiaries age 65 years old and older who rely on Social Security for 50 % or more of their income, as well as 23 % of beneficiaries age 65 and older who rely on Social Security for at least 90 % of their income.
Since the COVID-19 pandemic, Social Security disability attorneys in Illinois have seen a significant rise in concerns about Social Security benefits for elderly adults and disabled adults who receive Social Security Disability Insurance (SSDI) and Social Security Income (SSI).
- SSDI Benefits – SSDI pays disability benefits to workers and workers’ families when the worker has accumulated a sufficient number of work credits. The worker must also have worked long enough to pay Social Security taxes. This program is financed with Social Security taxes paid by workers, employers, and self-employed persons. Eligibility for SSDI benefits is based on a sufficient number of work credits earned based on a taxable work history.
- SSI Benefits – Supplemental Security Income (SSI) disability is based on financial needs rather than prior work history. SSI benefits are available to low-income individuals who have a prior work history or who have no work history. This program is financed through general tax revenues and does not relate to work credits. To be eligible for SSI benefits, a person must be a United States citizen or national and have limited income and resources for living requirements.
Average Annual COLA Increase in Illinois vs. the National Average
In 2021, people receiving Social Security retirement benefits, SSDI, and SSI received notices of SSDI benefits increase coming soon in 2022. Beginning in January 2023, people receiving SSDI benefits and SSI benefits received an 8.7% increase in their monthly benefits. This was based on high inflation rates that took a heavy toll on the US economy. All recipients of Social Security retirement benefits, as well as SSDI and SSI benefits, were impacted by the rising costs of living expenses, food, household utilities, insurance, medical care, and medications.
According to state statistics, the cost of living in Chicago is 12.4% higher than the national average. In 2023, area prices are up 0.8 % since 2022. The largest price increases are related to housing, food, and transportation.
Current COLA Increase in Illinois
In 2024, the COLA increase in Illinois will be 3.2% for individuals receiving Social Security retirement and SSI payments. On average, Social Security retirement benefits will increase by more than $50 per month starting in January. The Social Security Administration will mail COLA notices throughout the month of December to retired individuals, retirement survivors, disability beneficiaries, SSI recipients, and representative payees.
Factors Influencing COLA Increases
Factors that influence the COLA social security increase each year include inflation rates and the cost of living, When inflation rates go up, cost of living rates also go up. This means higher housing costs, higher gas prices, and higher prices for food, household items, goods and services, medical care, and medications. Inflation has an impact on so many resources that are essential to consumers.
Consumer Price Index for Urban Wage Earners and Clerical Workers
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is a variation of the consumer price index, as compiled by the Bureau of Labor Statistics (BLS) in the United States. It measures the changes in consumer prices to which certain workers are exposed. The index is primarily used on an annual basis and reflects changes in the costs of benefits paid to Social Security beneficiaries.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is an index of the cost of a basket of market goods for primarily blue-collar wageworkers. The CPI-W is calculated using average costs for more than 200 goods such as housing, food and beverages, transportation, and other common household goods and services including:
- Clothing and shoes
- Beds and bedding
- Bathroom essentials
- Recreational activities
- Education and learning materials
- Medical care, treatments, and medications
The Bureau of Labor Statistics (BLS) calculates the average cost that consumers pay for these goods and services each year and uses those averages to track changes from year to year. These changes are expressed as a percentage that shows the change in the day-to-day cost of living. A steep increase in the cost of these goods and services usually indicates a period of inflation, while a steep decrease usually indicates a period of deflation or recession.
Inflation
Inflation is a measure of how fast prices of goods and services are rising. It often occurs when prices rise due to increases in production costs, such as wages and raw materials. It can also occur due to a high demand for products and services by consumers. When inflation occurs, it typically leads to higher prices for necessities, such as housing, food, and consumer goods and services. Depending on the rate of inflation, it can have a negative impact on the overall economy. Once inflation becomes prevalent throughout an economy, the expectation of further inflation becomes a major concern for businesses and consumers.
The U.S. Federal Reserve and Central banks in developed economies monitor inflation closely. The Federal Reserve has an inflation target of about 2%. If prices rise too much or too fast, monetary policies are adjusted to combat inflation and its effects on the economy. Inflation is a concern because it makes money earned or saved today less valuable tomorrow. When this happens, people often struggle with an overall increase in their living expenses and the cost of day-to-day essentials.
