Social Security’s cost-of-living increase will be far smaller next year, estimates show
New estimates suggest that the cost-of-living adjustment (COLA) for Social Security benefits next year will likely be significantly lower than the increase received by seniors this year. The Senior Citizens League predicts that the increase in Social Security benefits for 2024 will only be around 3.1%, while Moody’s Analytics puts it at 3.2%. This is in stark contrast to the 8.7% boost in benefits provided this year, the biggest increase in four decades. Unfortunately, the smaller COLA may not be sufficient for the over 70 million retired senior citizens and disabled workers who are still struggling with rising prices.
One persistent problem with COLAs is how they are measured. The current method of adjusting Social Security benefits tends to be inadequate, as the index used to adjust benefits doesn’t accurately track the spending patterns of retired adults over the age of 62. Instead, it surveys the spending of younger working adults, who have different spending habits. As a result, the COLA is not always aligned with the actual needs of seniors.
Consumer prices in April showed that inflation pressures remain high in the US economy, but the headline prices rose at the slowest annual rate since April 2021. The actual COLA is calculated by averaging together the CPI-W consumer price index for the third quarter of the year and then comparing that figure with the same data from the previous year. The Social Security Administration is expected to announce the COLA in mid-October, following the release of the September consumer price index data.
While the current estimate of a 3.1% increase is in line with what the Social Security Trustees are forecasting for 2023, it’s still early, and the estimate may change several times before the COLA is announced in October. While Social Security beneficiaries will continue to enjoy inflation protection, this protection may not be enough. Over 53% of seniors say they’re worried that the COLA for next year will fall short of inflation because their monthly household budgets have already increased by $185 or more, exceeding the extra $140 per month provided by this year’s 8.7% COLA.
Part of the problem is that the index used to calculate COLA doesn’t necessarily reflect the typical spending habits of retirees. For example, the CPI-W, which is used to calculate the COLA, assumes that consumers spend only 7% of their incomes on healthcare costs. Still, according to a Senior Survey, two-thirds of survey participants spend up to 29% of their incomes on healthcare costs. Since 2000, The Senior Citizens League has created its own Social Security buying power index that tracks the price of 38 goods and services typically used by retirees over the same period. The group found that to match the buying power that Social Security’s monthly benefits provided for beneficiaries in 2000, retirees would now need an extra $516.70 per month ($6,200 in 2023).
Between January 2000 and February 2023, Social Security COLAs increased benefits by an average of 3.4% annually. However, the cost of goods and services purchased by typical retirees rose nearly double that amount, about 6.2% annually over the same period. As a result, retired households can now only buy about $64 worth of groceries today for every $100 they spent on groceries in 2000. The current situation underscores the need for policymakers to reevaluate the index used to calculate COLA so that it better reflects the actual needs of seniors.