People on Social Security will receive a much smaller bump of 3.2% in their benefits checks next year, as the cost-of-living adjustment, or COLA, after government data on Thursday showed inflation steadied in September from the prior month.

Annual inflation was 3.7% in September, matching August’s increase but off a 40-year high of 9.1% in June 2022. Without the volatile food and energy sectors, the so-called “core” inflation rate fell to 4.1% from August’s 4.3%. 

Although inflation remains about double the Federal Reserve’s 2% target, it remains mostly lower, which means Social Security recipients will see a lower COLA.

What will be the COLA for 2024 Social Security?

The 3.2% increase in 2024 is about one-third of the four-decade-high 8.7% COLA in 2023. And while the hike in benefits remains higher than the 2.6% average over the past 20 years, older adults are pessimistic about their finances and the growing possibility of Social Security benefit cuts, according to the latest retirement survey of 2,258 people by The Senior Citizens League, a nonprofit seniors group. 

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“Worry that retirement income won’t be enough to cover the cost of essentials in the coming months is a top concern of 56% of survey respondents,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, in a release. “Social Security benefit cuts are an even bigger concern.” 

Why is COLA not enough? 

Various reasons the COLA is falling short include: 

◾ Inflation: 68% of older adults say their household expenses remain at least 10% higher than one year ago, although the overall inflation rate has slowed, according to the League’s survey. They said this situation has persisted over the last year. 

◾ Benefit cuts: Nearly 6 out of 10 respondents rank this as their top worry. “Significant numbers of lower-income older households have lost access to some safety net programs over the past 12 months,” Johnson said.  

Some faced a double whammy. The 5.9% and 8.7% COLAs in 2022 and 2023, respectively, boosted incomes just enough to make some ineligible for low-income assistance programs such as supplemental nutrition assistance program, or SNAP (food stamps) and rental assistance, and federal emergency COVID-19 assistance for SNAP and Medicaid ended earlier this year. 

◾ Taxes: Because Social Security recipients received the highest COLA in 40 years in 2023, Johnson expects more beneficiaries to owe federal income taxes on their Social Security benefits for the first time in the upcoming 2024 tax season.  

Up to 85% of Social Security benefits can be counted as taxable income when income exceeds certain thresholds. Unlike other parts of the federal income tax code, the income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation. So, as Social Security income increases due to COLAs, both the number of retirees subject to taxation of benefits and the portion of benefits that may be taxable rise. 

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What can be done to help seniors? 

Congress could pass legislation to allow income tax thresholds for taxing Social Security to be adjusted annually for inflation, the same way the IRS adjusts tax brackets. 

Here’s an example of what that might mean for someone: 

◾ Current law says if an individual’s income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of benefits, and if it’s more than $34,000, up to 85% of benefits may be taxable. 

◾ If those thresholds were adjusted for inflation to 2023 dollars, then the individual filing status of $25,000 would be about $74,614, and $34,000 would be about $101,475, Johnson said. 

Congress also could change how the COLA is calculated to better reflect how seniors spend their money.  

“If that was the law today, the COLA in 2024 would be higher – about 4.2%,” Johnson estimates, using the government’s consumer price index for the elderly.  

How is COLA calculated?   

Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers from July through September. The index for urban wage earners largely reflects the broad index that the Labor Department releases each month but differs slightly. Last month, while the index remained at 3.7%, the index for urban wage earners was 3.6%.   

The Seniors Citizens League uses the most recent inflation data to keep a running projection of what COLA might be next year. September is particularly important because it makes up the final month SSA officially uses to calculate 2024’s COLA. 

How many Americans qualify for the COLA increase?   

About 70 million Americans receive benefits from programs administered by SSA, with retired workers and their dependents accounting for 76.9% of benefits paid in 2022.    

Nearly 9 out of 10 people aged 65 and older received a Social Security benefit as of Dec. 31. Among them, 12% of men and 15% of women rely on Social Security for 90% or more of their income.   

In August, the average monthly check for Social Security beneficiaries was $1,705.79, according to SSA. A 3.2% COLA would mean about an extra $54.58 each month.   

When does 2024 Social Security COLA go into effect?    

The new COLA will be effective starting in January.     

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her atmjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday.     

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