Social Security COLA for 2024 Increased : How Much Will Benefits Increase Next Year?After witnessing the highest Social Security cost-of-living adjustments (COLAs) in 40 years, beneficiaries are set to experience a more moderate rise in their monthly payments in 2024.
Social Security COLA for 2024 Increased : How Much Will Benefits Increase Next Year?
The Social Security Administration (SSA) uses an inflation metric to determine the annual COLA. This metric showed a 2.6% annual increase for July, the first of three months considered by the SSA. The final COLA figure will be unveiled in October.
Emerson Sprick, a senior economic analyst at the Bipartisan Policy Center, predicts that inflation will slightly increase in the coming months. He anticipates the 2024 COLA to be around 3%, translating to an average increase of $55 for the monthly Social Security retirement benefit, which was $1,837 in June 2023.
This is a notable change from the previous two years, which saw COLAs of 5.9% and 8.7%, the most significant adjustments since the early 1980s. These inflation-driven hikes increased the average retirement benefit by $92 in 2022 and $146 in 2023.
Several experts, including Preston Caldwell from Morningstar and Alicia Munnell from Boston College, also forecast a 3% COLA for 2024. While this might seem disappointing to some beneficiaries, Sprick emphasizes that the COLA is designed to counterbalance consumer price increases. A 3% COLA indicates a positive move towards controlling inflation, crucial for those with fixed incomes.
All Social Security benefits, including retirement, disability, and survivor, will be impacted by the COLA. The adjustment will be reflected in December 2023 payments, received by most beneficiaries in January 2024.
Understanding the COLA Calculation
The COLA is linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks price changes in various sectors and is reported monthly by the federal Bureau of Labor Statistics. The SSA determines the COLA by comparing the average CPI-W for July, August, and September each year to the same period the previous year.
Historically, the COLA has been in sync with inflation trends. For instance, during the 2000s and 2010s, the COLA averaged 2.2%. However, there were years with no COLA due to zero inflation, such as 2010, 2011, and 2016. The highest ever adjustment was 14.3% in 1980.
Does the COLA Reflect Inflation Accurately?
Research indicates that while Social Security benefits generally align with long-term inflation, short-term volatility can cause discrepancies. Beneficiaries experienced a loss in purchasing power in 2021 and 2022 due to surging inflation. However, 2023 saw a reversal, with inflation slowing down by the time the 8.7% benefit increase was implemented.
Mark Hulbert, a finance analyst, believes that if inflation continues its downward trend in 2024, the COLA might be slightly higher than the actual inflation rate.
Sector-specific data from the July CPI report highlighted that while health care costs have decreased over the past year, housing costs have surged. Richard Johnson, director of the Urban Institute’s Program on Retirement Policy, remains optimistic about inflation control in 2024, given the Federal Reserve’s efforts.
Another factor influencing the COLA’s effectiveness against inflation is Medicare costs. Heather Schreiber, a retirement income certified professional, points out that an increase in the Medicare Part B premium in 2024 could diminish the COLA’s impact for beneficiaries who have premiums deducted from their benefits.
Medicare’s trustees have provided a preliminary estimate for the standard Part B premium for 2024, but the final figure will be announced later in the year. Rising costs of specific drugs, like those for Alzheimer’s, might also influence the final benefit amount for 2024.