How does the 2024 Social Security COLA increase affect the US economy?

Every month the Social Security Administration (SSA) sends out over 71 million payments to beneficiaries. The vast majority of those are sent to recipients of Old-Age, Survivors, and Disability Insurance (OASDI) program which injects some $114 billion into the US economy every month according to the latest data from the agency. Over the year, that is almost $1.4 trillion or about 5 percent of US Gross Domestic Product.

That money helps support those who have contributed into the program during their careers once they’ve retired or become disabled, and also their survivors or certain family members who themselves are or have become disabled. The program provides a valuable lifeline not only to them, but also the local economies where they live.

How does the 2024 Social Security COLA increase affect the US economy?

In order to ensure that benefits can keep up with inflation the SSA automatically increases benefits every year with a cost-of-living adjustment, referred to more commonly as the annual COLA. On 12 October, the COLA increase for 2024 was announced, at 3.2 percent it is a modest boost compared to the previous two years, but substantially above the 2.6 percent averaged during the two decades before.

But if Social Security benefits represent such a significant portion of the US economy, wouldn’t the COLA be helping to drive inflation? Not according to legislative counsel and policy director at AARP, David Certner. Speaking to CNN’s Before the Bell he says that “this is a self-financing mechanism” due to wages rising along with prices over the past couple years. That means more payroll taxes paid into the system so it is “self-correcting in that way.”

Additionally, Social Security payments generate more GDP than the amount that is paid to beneficiaries each month. As the largest source of income for most, they provided half of the income for 40 percent of retirees in 2015, 90 percent for one out of seven, the money is put right back into the economy. Retirement benefits from the program for Americans are also modest, and much lower than those of many other developed nations.

Furthermore, while the COLA helps beneficiaries keep up with inflation, they never get ahead. Quite the opposite according to research by the Senior Citizens League (SCL). The non-profit advocate for seniors found that Social Security benefits have lost roughly 36 percent of purchasing power since 2000.

One of the major expenses for seniors is medical costs, which tend to rise faster than general inflation. The SCL was pleased that the increase to Medicare Part B for next year won’t be as high as had been expected. Still, premium and deductible amounts will rise by nearly 6 percent, almost double the 2024 COLA.