Social Security COLA 2024 Expectations for Next Year Benefits Increase. After two years that witnessed Social Security cost-of-living adjustments (COLAs) reaching their highest levels in four decades, beneficiaries are anticipated to experience a more restrained boost in their monthly payments in the coming year.
Inflation Trends and COLA Calculation
The Social Security Administration (SSA) employs a specific inflation gauge to determine the annual COLA. For July and August, this gauge rose at a rate of 2.6 percent and 3.4 percent, respectively, which are the initial two months in the three-month period used by the agency to calculate the final figure, slated for announcement in October.
According to Emerson Sprick, a senior economic analyst at the Bipartisan Policy Center, the August increase in inflation exceeded earlier expectations. Additionally, September’s inflation numbers are likely to follow suit, pushing the COLA slightly beyond 3 percent. A 3 percent adjustment would increase the average Social Security retirement benefit, which stood at $1,839 a month in July 2023, by approximately $55 per month in 2024.
How Social Security Determines the COLA
Social Security COLAs are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures price changes for a selection of goods and services, including food, energy, and medical care, and is reported monthly by the federal Bureau of Labor Statistics. The SSA calculates the COLA by comparing the average CPI-W for July, August, and September of each year to the figure for the same period in the preceding year.
Analyst Expectations for the 2024 COLA
Several analysts, including Preston Caldwell, a senior U.S. economist at Morningstar; Alicia Munnell, director of the Center for Retirement Research at Boston College; and Richard Johnson, director of the Urban Institute’s Program on Retirement Policy, anticipate a 2024 COLA of around 3 percent.
Sprick notes that while this might appear underwhelming to Social Security recipients, it’s crucial to understand that the COLA is designed to precisely offset the price increases measured by the Consumer Price Index since the last COLA determination. A 3 percent COLA indicates inflation may be stabilizing, a reassuring development for those on fixed incomes.
Impact of the COLA on Various Benefit Types
All forms of Social Security benefits—retirement, disability, family, and survivor benefits—are influenced by the COLA. The adjustment becomes effective with December Social Security payments, typically received in January of the following year.
Historical Comparison and Future Projections
If projections hold, next year’s benefit adjustment will align more closely with the pre-pandemic era of relatively low inflation. Throughout the 2000s and 2010s, the COLA averaged around 2.2 percent. When there is no inflation, there is no COLA, as witnessed in 2010, 2011, and 2016. The largest-ever adjustment was 14.3 percent in 1980.
COLA Relation to Inflation
Studies by the Center for Retirement Research indicate that Social Security benefits generally keep pace with inflation in the long term but can lag during short-term periods of volatility. The impact depends on whether the price index is trending up or down when the COLA is determined.
Factors Influencing COLA and Inflation Trends
Several factors can affect the value of the COLA as a hedge against inflation, including Medicare costs and the rising costs of Alzheimer’s drugs covered by Medicare. These variables could play a role in determining the final benefit amount for 2024.
While a 3 percent COLA may not seem significant at first glance, it reflects the complex interplay of economic factors and serves as a vital mechanism to help Social Security recipients maintain their purchasing power in an evolving economic landscape.
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