Social Security: what is COLA, how is it calculated and how will payments be in 2024?
So that Social Security benefits keep pace with inflation an annual adjustment is applied. What is COLA and how will it affect checks issued in 2024?
When living on fixed budget, as may retirees do, price swings can make budgeting difficult. During periods of rapidly rising inflation, like that experienced in the wake of the brief covid-19 recession, can quickly eat away at purchasing power.
To prevent Social Security beneficiaries, those who receive retiree, survivor and disability benefits, losing purchasing power the Social Security Administration applies an annual cost-of-living adjustment (COLA). The COLA is then applied at the beginning of each year to monthly benefit payments.
Social Security: what is COLA and how is it calculated?
COLA is calculated based on the Consumer Price Index for Salaried Workers in Urban Areas and Clerical Workers (CPI-W). The calculation runs from the third quarter of the prior year to the third quarter of the current year. The result is the increase that will be applied to Social Security payments for the following year.
For example, the CPI-W for the third quarter of 2021 was 268.421, while that of 2022 was 291.901. Between one quarter and another there was a difference of 8.7%, which is the increase that was applied to Social Security payments for 2023.
What will Social Security payments look like in 2024?
In 2023, there was a higher COLA increase due to high levels of inflation. However, for next year, a smaller increase is forecast, since inflation has fallen month after month.
According to the most recent estimate from The Senior Citizens League, one of the nation’s largest nonpartisan senior groups, the Social Security cost-of-living adjustment for 2024 could be 3%. This estimate is based on data from the consumer price index for the month of June.
In June, the CPI-W, the index used to determine COLA, rose 2.3% year-over-year. However, while the 2023 COLA of 8.7% has outpaced inflation experienced each month so far this year, the sensation for many retirees and beneficiaries is that the annual adjustment of monthly payments isn’t keeping pace with the cost they expierence day-to-day.
Taking into account that the average monthly amount of Social Security checks is $1,827 in 2023, with an increase of 3%, they would be around $1,881 dollars for 2024. To obtain an estimate of your benefits in 2024, you can multiply your current monthly payment bu 1.03.
Do remember that this calculation is not official, since the SSA calculates the payments annually on an individual basis following a formula to determine the amount of primary insurance, and later the amount that it will send to each beneficiary.
Also, the estimate of 3% for COLA 2024 is only preliminary and is subject to change. SSA will announce the official COLA for 2024 in October of this year. The increase will be applied starting with payments corresponding to January of 2024.