Retirees are enjoying one of their biggest "raises" in years. Social Security benefits jumped 8.7% in 2023, the highest increase since 1981.
Is another huge adjustment on the way next year? Here's how much your Social Security benefits will increase in 2024 as things stand right now.
Crunching the numbers
It's too soon to know for sure what the amount of the next Social Security cost-of-living adjustment (COLA) will be. The benefit increase is calculated by comparing the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter with the average for the same quarter in the prior year.
However, we can look at the average CPI-W over recent months to make an early guess at what next year's COLA might be. At this point, it seems quite likely that the adjustment will be well below the historic increase received this year.
The CPI-W for May isn't available yet. But the average of the inflation metric for February, March, and April is 4.97% higher than the average for the same three months in 2022.
Inflation soared in the third quarter of last year, though. If we compare the three-month average for the CPI-W against the 2022 Q3 average, the increase is only around 1.5%.
Things can change
Based on how the numbers are looking right now, the COLA for 2024 could be below 2%. That would put it in the general range of adjustments that retirees received throughout much of the last decade before the 5.9% and 8.7% increases of the past two years.
But it's important to understand that things can change. The CPI-W has risen sequentially in each of the first four months of 2023. If this trend continues, the next COLA could be bigger than the current scenario indicates.
On the other hand, the Federal Reserve could still raise interest rates further in an effort to fight inflation. It's also possible that the U.S. economy could enter into a recession that causes inflation to fall.
Could there even be no COLA next year? Maybe. That's happened in three of the last 14 years. However, the CPI-W probably won't decline enough by the end of the third quarter to completely rule out an adjustment for 2024.
Good news and bad news
Let's assume that inflation in the third quarter is somewhat similar to the levels from recent months. If so, there's good news and bad news for retirees.
First, the bad news. Your COLA will likely be much smaller in 2024 than it is in 2023.
If you're the kind of person who sees the glass of water as half-full, the situation could look even worse. Why? The CPI-W doesn't reflect the actual cost increases for seniors as well as it could. In particular, healthcare costs tend to be greater for older Americans.
What's the good news? A lower COLA would mean that inflation has declined. This scenario benefits all Americans, including retirees.
Keep in mind, too, that any adjustment received from Social Security is after the fact. Your benefits increase too late to offset the higher costs you've already incurred. Therefore, most retirees will probably be better off with lower inflation and a lower subsequent COLA than they would with higher inflation and a higher resulting adjustment.
We'll have to wait until October to know for sure the exact COLA amount for next year. The next few months, though, should give us a better idea of how much it might be.
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