Prior to this year, Social Security COLAs - or Cost of Living Adjustments - had been low, to say the least. Low inflation and low interest rates had conspired to ensure that the COLAs remained relatively small. This year changed everything: Social Securit

• Author: Jeffrey Simmons
• Posted: 2024-09-03

The COLA itself

The 6% increase was announced as a result of inflation that occurred in the 3rd quarter of 2021 when compared to the third quarter of 2020. As you would expect, this year saw significant inflation in a variety of metrics. As a result, the 6% increase was announced.
There is no question that the United States is in a higher inflationary period than it has been in years. The cost of a variety of items - including groceries, clothing, and more - has increased. Traditionally, social security cost of living increases have not completely kept pace with inflation, but this year, that has largely changed.
According to the AARP, the main driver for this COLA was the increase in energy costs, with a gallon of gasoline increasing significantly. This was to be expected, as the demand for driving has largely returned after a pandemic-inspired dip in gas prices. That has further impacted a variety of other travel-related areas and caused a domino effect that has increased prices across the board.
This inflationary increase may hit some seniors more than others. However, the 6% increase in social security benefits will be felt across the board.

Potential risks

A 6% increase is great, right? Sure. But, that's not to say that there aren't real concerns that social security recipients have to keep an eye out for and depending on your personal finances and the structure of your taxes, you may get hid harder by some than others.
For example, while the 6% increase is great, it is important to remember that the amount of taxes that are withheld from your social security check will also increase. As such, depending on your withholding, you may not see a 6% increase in taxes. Furthermore, if you aren't withholding enough, the amount of taxes you owe to the government may also increase.
Additionally, Medicare Part B premiums are also affected by social security COLAs. As such, your health insurance costs may increase as well, as income thresholds also increase when social security increases. This will be the case if you move from one tax bracket to the next.

What to do

The risks, as such, are obvious. However, thankfully, there are things that all social security recipients can do in order to protect themselves and their financial future.
First, make sure you have a full understanding of how the 6% increase can help and hurt you. Everyone's financial situation is different, and it is vital that you understand what this means for you.
Generally speaking, if you are able, you'll absolutely want to check out financial tactics that can help to offset these gains and keep you from entering a new tax bracket. This may include transfers from an IRA to a qualified charity, and you may want to consider increasing your tax withholdings as well. Of course, your ability to do this obviously depends on your personal financial situation, but if you are able to withhold more money or give more to charity, it may be worth it in the long run.
At the end of the day, what does this mean for the average Social Security recipient? It's tough to say, but there's no question that the 6% increase comes with some risks. As such, make sure you fully understand what this 6% increase can do to you and your wallet, and make sure that you are conscious specifically of how the increase can affect your health insurance and taxes.