The anticipation is on the rise as Social Security beneficiaries eagerly await news about the upcoming cost-of-living adjustments (COLA) for 2024. After experiencing a significant boost in the past two years, it seems that the increase in monthly payments might be more moderate this time around.
The inflation gauge utilized by the Social Security Administration (SSA) to determine the COLA has shown a 2.6% annual rise for July, marking the beginning of the three-month period used to calculate the final figure. All eyes are on the upcoming announcement in October that will unveil the extent of the 2024 COLA.
What Are the Trends in Social Security Colas over the past Decade?
The Cost-Of-Living-Adjustment (COLA) is a measure applied annually by the Social Security Administration (SSA) to counter the effects of inflation on the benefits paid out to beneficiaries. This adjustment applies to a variety of recipients including retired workers, survivors, those getting Social Security Disability Income (SSDI), and recipients of Supplemental Security Income (SSI) payments.
Over the past ten years, COLA increases have varied from year to year. They ranged from a zero percent rise in 2016 to 3.6% in 2012, with an average of 1.7% over the decade. The highest COLA was in 1980 when it increased by 14.3%.
In 2022, the COLA reached a four-decade high of 8.7% due to soaring inflation. However, projections for 2024 suggest a lower COLA of around 3.1% if inflation continues to cool.
The following is a list of Social Security COLAs over the past decade:
- 2010: 0.0%
- 2011: 3.6%
- 2012: 1.7%
- 2013: 1.5%
- 2014: 1.7%
- 2015: 0.0%
- 2016: 0.3%
- 2017: 2.0%
- 2018: 2.8%
- 2019: 1.6%
- 2020: 1.3%
- 2021: 5.9%
- 2022: 8.7%
Source: https://www.ssa.gov/oact/cola/colaseries.html
Social Security 2024 COLA Increase: What Is At Stake?
Following two years that saw remarkable COLA increases, reaching the highest levels in four decades, beneficiaries are poised to experience a not-that-large rise in their monthly payments next year. The trend points towards a more balanced approach to COLA, signaling a shift from the extraordinary adjustments witnessed in recent times.
Emerson Sprick, offers insights into the potential for the 2024 COLA. Based on current projections and trends, he estimates that the COLA will land at approximately 3%. This percentage could lead to an increase of about $55 per month for the average Social Security retirement benefit, which was $1,837 a month in June 2023.
Projections and Expectations for Social Security COLA 2024
The projected 3% increase marks a departure from the 5.9% and 8.7% COLAs of the past two years, representing the most significant benefit adjustments in terms of percentage since the early 1980s. These notable increases added $92 in 2022 and $146 this year to the average retirement benefit.
Other financial analysts, including Preston Caldwell from Morningstar, Alicia Munnell from Boston College’s Center for Retirement Research, and Richard Johnson from the Urban Institute’s Program on Retirement Policy, share similar expectations of a 2024 COLA hovering around 3%.
Factors Influencing COLA and Inflation
Medicare Costs and Inflation Dynamics: The value of the COLA as a hedge against inflation is also influenced by factors like Medicare costs. If the Medicare Part B premium increases in 2024, it could offset a portion of the COLA increase for beneficiaries who have premiums deducted directly from their benefit payments. This scenario applies to approximately 70% of Medicare enrollees.
While the exact Part B premium for 2024 is still preliminary, estimates suggest an increase from the current rate. Additionally, the costs of Alzheimer’s drugs covered by Medicare could play a role in determining the final benefit amount for 2024, adding an extra layer of complexity to the equation.
The Balanced Equation of the COLA
While a 3% COLA might appear less exhilarating for Social Security recipients, it’s essential to recognize its purpose. The COLA is meticulously calculated to counterbalance the rise in prices that consumers face. This balance is achieved by gauging the Consumer Price Index (CPI) changes since the last COLA was determined. In essence, the COLA’s purpose is to ensure that beneficiaries’ purchasing power remains relatively stable, considering the price fluctuations in goods and services.
Embracing a 3% COLA could signify a positive shift towards controlling inflation, which holds particular significance for those living on fixed incomes. The stability offered by a modest increase is often preferable to experiencing large COLAs that can result from significant economic fluctuations.
Wide-Ranging Impact of the COLA. It’s worth noting that all forms of Social Security benefits—retirement, disability, family, and survivor benefits—are influenced by the COLA. The adjustment comes into effect with the December Social Security payments, which most beneficiaries are set to receive in January 2024.
How the COLA Calculation Unfolds
The calculation of Social Security COLAs is intertwined with the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index gauges changes in prices for various goods and services, such as food, energy, and medical care. The CPI-W is reported monthly by the federal Bureau of Labor Statistics and serves as a basis for determining the annual COLA.
To arrive at the COLA figure, the SSA compares the average CPI-W for July, August, and September of each year to the corresponding period in the previous year. For instance, the CPI-W changes for these months in 2022 were 9.1%, 8.7%, and 8.5%, resulting in an average of 8.7% higher over the entire quarter compared to the same period in 2021. This led to the COLA that took effect at the start of the current year.
Navigating Inflation and COLA’s Role
COLA’s Response to Inflation Trends. Studies conducted by the Center for Retirement Research highlight how Social Security benefits generally align well with inflation over the long term. However, they can lag behind during shorter periods of volatility, depending on inflation trends when the COLA is determined.
Beneficiaries experienced a decrease in purchasing power in 2021 and 2022 due to COLAs of 1.3% and 5.9%, respectively, which couldn’t keep up with inflation surges that peaked at around 9% in mid-2022. Conversely, this year’s 8.7% COLA aligned well with a cooling inflation environment, resulting in a beneficial effect on purchasing power.
A 3% COLA for 2024 could similarly harmonize with a declining inflation trend, benefiting beneficiaries if this economic trajectory continues.
How to Apply for Social Security in 2024
If you’re thinking about applying for Social Security in 2024, you have several options. The most convenient and straightforward route to apply is online. Simply navigate to the Social Security Administration’s dedicated ‘Apply for Benefits’ webpage and meticulously follow the provided instructions.
If online services aren’t an option for you, you can reach out to your local Social Security office for assistance. Utilize the ‘Field Office Locator’ tool on the Social Security Administration’s official website to identify and contact your nearest office.
Alternatively, you can opt for applying by phone. Dial the Social Security Administration at 1-800-772-1213 (TTY 1-800-325-0778) during their operating hours, which are from 8:00 a.m. to 7:00 p.m. on weekdays. Get all the information here.