Key takeaways
- A significantly smaller increase to Social Security benefits in 2024 versus the past two years is reflective of significantly lower inflation.
- Individuals do not have to file for benefits before December 31 in order to receive the cost-of-living adjustment.
- Helping clients maximize their potential Social Security benefits is an opportunity for you to deliver more value as their advisor.
The 2024 COLA is good news
The Social Security Administration announced a 3.2% cost-of-living adjustment (COLA) for 2024, which could seem underwhelming compared to the increases in the past two years. The 8.7% COLA that took effect in 2023 was the largest ever granted to today’s retirees, and that came on the back of a sizeable 5.9% increase in 2022.
If a client seems unhappy about this year’s COLA figure, you might remind them that the Social Security Administration provides COLAs to keep up with inflation. The large adjustments in the past two years were anomalies due to very high rates of inflation. Given that COLAs have averaged 2.5% over the past 30 years, this year’s adjustment marks a return to the norm.
A significantly lower COLA reflects significantly lower inflation over the past year as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Even so, it’s worth noting that the 2024 increase to Social Security benefits is still higher than the average increase in past years, reflecting the continued higher-than-average inflationary environment.
The lower COLA for 2024 is still higher than average
Social Security cost of living adjustments since 1994
Source: Social Security Administration.
Maximize Social Security benefits for your clients
Filing for benefits now doesn’t ‘lock in’ the COLA
Clients who are eligible for Social Security benefits but have not yet filed often react to COLA announcements by asking their advisor: “Should I file for benefits before December 31 to lock in the COLA?”
COLAs, no matter how big, should never be a factor in the decision about when to file for benefits. December 31 is the effective date – not a deadline – for the COLA. On the effective date, the COLA is applied to the current or future benefits for all individuals aged 62 and older. (Before age 62, an individual’s future benefits are adjusted for inflation through a different methodology.) In other words, all individuals aged 62 and up will receive the increase when they begin receiving benefits.
Maximize Social Security benefits for your clients
The right time for a client to file for Social Security benefits depends on their personal and family circumstances and preferences. The decision can often be complicated, especially for clients who are married or have young children, and therefore creates an opportunity for you to add value as their advisor.
Begin by educating your clients on the tradeoffs of filing earlier or later than their full retirement age (which ranges between 66 and 67 years for clients today, depending on their date of birth). While individuals are eligible for Social Security benefits as early as age 62, filing early permanently reduces the amount of their monthly benefits. Delaying filing may result in a larger monthly benefit but does not necessarily maximize the total benefit to your client and their family. To determine the optimal time for a client to file, you will need to account for life expectancy, cash flow needs, marital status and numerous other factors.
BlackRock can help you maximize your clients’ potential Social Security benefits. Contact your BlackRock representative for more information or explore our online tools and resources.
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