Based on recent inflation data including today’s May report from the U.S. Bureau of Labor Statistics, The Senior Citizens League is currently projecting that the 2024 Social Security cost of living adjustment (COLA) would be 2.7%, down from its May projection of 3.1%.
“New consumer price data indicates that inflation is at its lowest level since March 2021. That was the start of our recent 40-year storm of two back-to-back years of historically high consumer prices,” said Mary Johnson, TSCL’s Social Security and Medicare policy analyst.
Johnson noted that the data show inflation continues to moderate slowly. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the index that is used to determine the COLA, was up 3.6% percent year over year, the lowest level increase since it was 3.0% in March of 2021. The average monthly rate of inflation continues to trend downward and has almost reached the historical “average” rate of change.
Since January of this year, the actual inflation rate, as measured by the CPI-W, was lower than the amount older Americans received in their 8.7% COLAs. “That difference theoretically should provide a modest temporary improvement in buying power of roughly $52 per month for a retiree with average benefits of $1,694,” Johnson said. “Inflation, however, was so severe in 2021 and 2022 that the average Social Security benefit fell behind by $1,054, leaving 53% retirees doubting they will recover because household costs rose more than the dollar amount of their COLAs.”
While the COLA raise was 5.9% in 2022 prior to 2023’s huge 8.7% increase, between 2013 and 2021 it stayed in a range between a low of 0.0% (2016) to 2.8% (2019).
Official 2024 COLA announced in October
The official 2024 Social Security COLA will not be determined and then announced until around the second week of October. It is based on the 12-month average rate for the CPI-W, which tracks the prices of a market basket of consumer goods and services and has been on the decline in recent months.
The next year’s COLA is determined based on the average CPI-W number in the third quarter (July, August and September) of the current year, which is then compared to the average from the third quarter of the prior year. The percentage difference between becomes the following year’s COLA.
Inflation rates soared during the third quarter of 2022, leading to this year’s 8.7% COLA, the biggest since 1981, when it was 11.2%.
With inflation rates driving the COLA calculations, declining inflation means Americans should not be surprised by a much more moderate COLA increase next year. While the CPI-W was up 6.25% in January, by April it slowed to a 4.6% increase, and then to 3.6% in May, per today’s release from the BLS. For the month, the index increased 0.2% prior to seasonal adjustment.
Little improvement for older consumers
According to an ongoing survey by The Senior Citizens League, older consumers are reporting little improvement in their household spending yet. Sixty-two percent of survey participants report food costs as their fastest-growing cost, while housing costs are the biggest concern of 22% of survey respondents. The survey has 2,275 respondents through June 6, 2023.
Last month, TSCL reported that Social Security benefits have lost 36% of their buying power since 2000. Between January 2000 and February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually. But TSCL’s new research on the buying power of Social Security benefits found the cost of goods and services purchased by typical retirees rose by a staggering 141.4%, averaging about 6.2% annually over the same period. That means that for every $100 a retired household spent on goods and services in 2000, that household can only buy about $64 worth today.
The next monthly COLA forecast update is set for July 12, the days the BLS releases inflation data for the month of June.
SEE ALSO:
• 2024 Social Security COLA Projection Now at 3.1%
• 69% of Near Retirees Failed or Barely Passed MassMutual’s Social Security Quiz
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.