With the recent cooling of inflation, the likelihood of a substantial increase in Social Security benefits for the upcoming year is dwindling. Retirees may be facing a cost of living adjustment (COLA) in the ballpark of 3%, which pales in comparison to the robust COLA of 2023.
The Senior Citizens League, a nonpartisan advocacy group, has projected that the COLA for next year could be around 3%, less than half of the increase witnessed in 2023. This projection is based on the group’s analysis of inflation data, which guides their forecasts.
However, there’s a variable in play. Another estimate, due on September 13, will take into account fresh inflation data for August. This estimate could shift higher or lower. The exact inflation adjustment percentage will become clear in mid-October.
The COLA for this year provided a remarkable 8.7% uptick for Social Security and Supplemental Security Income benefits. This increase was the largest since 1981, when the inflation adjustment had spiked to 11.2%. In comparison, the COLA for 2022 stood at a solid 5.9%.
Despite these fluctuations, it’s unwise to bank on a specific increase for Social Security benefits in 2024. However, experts suggest that an increment in the range of 2.7% to 3.2% remains a strong likelihood.
“We are returning to reality,” commented Mary Johnson, a policy analyst at the Senior Citizens League. She oversees inflation adjustment estimates for Social Security. She pointed out, though, that a 3% adjustment is still above the historical average.
Over the past twenty years, the average inflation adjustment for Social Security benefits has hovered around 2.6%. Notably, three years in that period saw no adjustment due to 0% inflation: 2010, 2011, and 2016.
Before the disruptions caused by the COVID-19 pandemic, inflation adjustments were more modest. The infusion of federal stimulus payments and disruptions in supply chains led to more significant changes. In 2020, the inflation adjustment was 1.6%, followed by a 1.3% increase in 2021.
Even though a 3% increase might seem reasonable on its own, when contrasted with the previous year’s 8.7% hike, it can be overwhelming for seniors on tight budgets.
How Inflation Shapes Social Security Adjustments
The calculation for the upcoming inflation adjustment follows a specific formula laid out in the Social Security Act. It hinges on the monthly changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August, and September.
On September 13, the U.S. Bureau of Labor Statistics will release inflation data for August at 8:30 a.m. The September data will follow on October 12.
The most recent data indicated a 3.2% increase in the consumer price index in July over the past year. The CPI-W, over the same 12-month period, experienced a 2.6% rise through July.
The calculation process involves summing up the inflation figures based on the CPI-W for July, August, and September. This sum is then averaged.
As inflation progresses, the average for the third quarter of this year will be compared to the average from the same period the previous year. The percentage difference between the two will determine the COLA for January 2024.
Anticipating a 3% COLA, the average monthly Social Security retirement benefit could see an increase of approximately $55. This would bring the average monthly benefit to around $1,882. Extrapolated over a year, this would amount to an additional $660.
Comparatively, the COLA for 2023 translated to an extra $146 per month, based on an average benefit of about $1,681 for retired workers. Over the year, this adjustment amounted to $1,752.
As of June, about 71 million individuals across the U.S. were receiving Social Security benefits and/or Supplemental Security Income, according to data from the Social Security Administration.