Why the Social Security COLA may be much lower next year
Year-on-year historic increases are unlikely to be met with another big rise if inflation is dealt with promptly.
Benefits are adjusted each year to prevent Americans from being swamped by inflation. This cost of living adjustment (COLA) has been especially important in the last two years, which saw adjustment increases of 5.9% and 8.7% in 2022 and 2023 respectively.
With inflation still doggedly high, as evidenced by another increase in February, attention has turned toward the COLA for 2024. Expectations of the inflation level later in the year mean the adjustment is more than likely to be smaller than the one at the turn of this year.
Speaking to CBS News, Mary Johnson, the Social Security and Medicare policy analyst at the Senior Citizens League (SCL), explained why she believed this would be the case.
“Based on February inflation data, the COLA looks like it will be below 3% and could fall into the 2% or even lower range by the third quarter if that 12-month average continues to decline,” she said.
To calculate the COLA, the Social Security Administration (SSA) takes the monthly inflation average from the third quarter, July, August and September. If there is no percentage increase on the year prior then there will be no adjustment, though banks like Goldman Sachs expects inflation to be between 3% and 4% by September.
“For there to even be a COLA [in 2024], inflation would have to exceed [the 8.7% of 2023],” Johnson opined.
A 2024 COLA forecast from the SCL is expected in May 2023 which is usually within a few tenths of a percentage accurate.
What is the Social Security COLA?
The Cost of Living Adjustment (COLA) is the amount that the Social Security Administration (SSA) increases benefits every year to keep payments up to speed with price rises. Were it to not exist, benefits claimants would see their real-world support decrease every year.
The COLA change is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which is published monthly by the US Bureau of Labor Statistics.