Social Security an important benefit for most retirees

Retirees on Social Security will see their monthly benefit increase next year. The Senior Citizens League estimates that Social Security's cost of living adjustment (COLA) will be 3.2%. The estimate is based on the latest inflation data, so the prediction is in the ballpark. (The annual COLA adjustment is tied to average inflation during July, August, and September as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers.) The average retiree monthly benefit of $1,790 will probably increase by $57.30 beginning next year. The Social Security Administration will announce the COLA hike for 2024 later this month.

That said, the impact on household finances among beneficiaries won't be known until Medicare premiums are announced, typically in November. The Social Security Administration automatically deducts Medicare Part B premiums from Social Security benefits. The Senior Citizens League forecast is that most beneficiaries may see their Part B premium rise by almost $15 per month from 2023.

Social Security comes with an annual automatic cost of living adjustment, a valuable protection against higher inflation rates. Social Security is longevity insurance: You can't outlive the benefit. With a long life you may run out of money in retirement savings, but you can rely on your monthly Social Security payments for life.

The program is critical to most retirees. Estimates are that about half of older people live in households receiving at least 50% of their family income from Social Security. Little wonder Social Security enjoys broad support. A Pew Research Center survey from 2017 found that 86% of Republicans and 95% of Democrats said they would maintain or increase spending with Social Security. Considering the funding shortfall looming in about a decade, Washington should move now to boost Social Security finances without reducing benefits for current and future beneficiaries.

For those nearing retirement, take the time to understand the program. A big reason for researching the earned benefit is to make an informed decision about when to file. The benefit is potentially 76% higher if you wait to file at age 70 (the latest) compared to age 62 (the earliest). Married couples in particular have several filing strategies to consider for maximizing their benefit. To be clear, the best choice may be to file earlier rather than later, perhaps because of poor health, caregiving responsibilities, and other reasons. What matters is making, and living with, an educated choice.

Chris Farrell is senior economics contributor, "Marketplace"; commentator, Minnesota Public Radio.