Based on April inflation data released this morning by the U.S. Bureau of Labor Statistics, the prospects of a much-lower Social Security Cost of Living Adjustment (COLA) for 2024 are starting to crystalize.
The declining rate of inflation points to a “significantly lower” COLA next year than this year’s historic 8.7% COLA increase—which was the highest in four decades. “The 2024 COLA could be around 3.1%,” said The Senior Citizens League’s Social Security and Medicare policy analyst, Mary Johnson.
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 Consumer Price Index that is used to calculate the Social Security COLA (CPI-W), which has been on the decline.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.6% over the last 12 months (a slight rise from 4.5% in March) according to this morning’s release from the BLS. For the month of April, the index increased 0.6% prior to seasonal adjustment.
This year’s 8.7% COLA raised the average monthly retiree benefit by about $144 to $1,800. The COLA raise was 5.9% in 2022 and 1.3% in 2021. If the 2024 COLA were to end up at Johnson’s current projection of 3.1%, the average monthly retiree benefit would increase by $55.80 to $1,855.80.
Benefits have lost 36% of buying power since 2000
Johnson, perhaps the most-quoted forecaster of next-year COLA rates in the country, also reports today 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 buying power of Social Security benefits can erode when the annual COLA fails to keep pace with rising costs. But in some years, buying power can improve modestly when inflation moderates. One year ago, this study found that Social Security benefits lost 40% of buying power since 2000. That was the deepest loss in buying power since the start of this study in 2010. This year the study found that the loss of buying power slightly improved—by four percentage points to 36%. However, Johnson points out that is still one of the deepest losses recorded by this study, exceeded only by the loss in 2022.
This year, Johnson says buying power was most impacted by sharp increases in food items, electricity, rental housing, repair and maintenance costs of motor vehicles, and a 16% increase in the cost of dental care (Medicare does not cover routine dental services). Topping the list of fastest-growing items? Eggs. No other spending item on the list grew faster during the survey reference period, which compared the average price change from February 2022 to February 2023.
Specifically, for a dozen large, Grade A eggs, the average price was $0.98 in Jan. 2000. The average cost in Feb. 2023? $4.21—an increase of 332%. That even topped out-of-pocket prescription drugs, which have increased 311% since Jan. 2000.
Debt limit showdown could impact payments
While unlikely, there is a chance that the ongoing debt limit showdown between Democrats and Republicans could delay Social Security payments-possibly as soon as this summer.
“Beneficiaries are legally entitled to their full scheduled benefits under the Social Security Act. But according to a recent issue brief from the Congressional Research Service, another law, the Antideficiency Act, prohibits government spending in excess of the amount of available funds,” TSCL’s Johnson points out.
The Social Security Administration (SSA) would not have legal authority to pay Social Security benefits in full or on time should the Trust Funds fall short due to a delay in an agreement over the debt limit. There is no law that provides the specific actions that the SSA must take to ensure Social Security benefits are paid in full and on time.
Johnson added that the Social Security Trust Fund is the largest government holder of U.S. debt—an estimated $2.8 trillion according to the Social Security Trustees most recent annual report. By law, Social Security benefits are paid out of the Social Security Trust Fund. When employers send in payroll tax revenues and the U.S. Treasury receives federal income taxes from taxation of Social Security benefits, the Treasury issues special non-marketable bonds, in the amount of the funds to Trust Fund. In other words, the U.S. government “borrows” those funds.
In return the SSA depends on “the net interest” earned by the special bonds, in addition to payroll tax revenues, to pay the Social Security benefits of today’s retirees in full and on time. The Social Security Trustees recently estimated the retirement and survivors Trust Fund will receive about $66.4 billion in net interest in 2023. That money comes out of the Federal General Budget and is subject to the debt limit.
SEE ALSO:
• New Inflation Data Shows 2024 Social Security COLA Still Headed Below 3%
• Debt Limit Standoff: Are Social Security Benefits at Risk?
• 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.
