Update: Updated 2025 Social Security COLA Forecasts Point Toward Lower Raise
It’s not going to approach 2023’s historically high COLA increase of 8.7%, but the 2024 Social Security cost of living adjustment is expected to be 3.2%, which if it comes to fruition would raise an average monthly retiree benefit of $1,790 by $57.30.
That’s according to the final COLA forecast of the year, released this morning by The Senior Citizens League’s Mary Johnson, who has a long track record of accurately predicting the following year’s COLA from on her analysis of inflation trends based on monthly Consumer Price Index data.
Johnson’s 2024 COLA forecast was at 2.7% as of June but increased to 3% in July and stayed there in August before rising to 3.2% for September. The increase came after the Bureau of Labor Statistics announced this morning that the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—the index that’s used to determine the COLA—was up 3.4% year over year through August, increasing 0.6% for the month prior to seasonal adjustment. . It was only up 0.2% in July.
Headline CPI was in line with expectations, reflecting the recent rise in oil prices, but core inflation came in higher than expected on a month-over-month basis, according to Niladri “Neel” Mukherjee, chief investment officer of TIAA’s wealth management division. “It’s too early to declare victory over inflation. Inflation is proving to be sticky, supported by a strong economy and consumer spending. This argues for higher interest rates for longer,” Mukherjee told 401(k) Specialist Wednesday. “The Fed is likely to skip raising rates in September, but November could be a live meeting if subsequent inflation data remains elevated and the labor market remains strong.”
The next year’s COLA is calculated based on inflation during this year’s third quarter—July, August, and September—as measured by the CPI-W. Inflation for those three months is added together and averaged, then compared with the third quarter average from one year ago. The percentage difference between the two is the amount of the COLA, which would be applied for beneficiary checks received starting in January 2024. The 2023 COLA computation can be found on the Social Security website.
The official 2024 Social Security COLA will be announced by the Social Security Administration on Thursday, Oct. 12, after it makes final calculations based on Consumer Price Index data for September released on that day.
A 3.2% increase would be significantly higher than the 2.6% average increase beneficiaries have received over the past 20 years. But a $57.30 average monthly increase is well below the $146 per month average increase beneficiaries saw this year after the 8.7% COLA.
Older households spend modestly
In 2023 retirees received the highest COLA in 40 years—8.7%, “but nobody is getting rich,” Johnson said. “The reality is that the dollar amount of the COLA increase received is meager at best, with the average monthly retiree benefit only $1,790 in 2023.”
According to TSCL’s latest Retirement Survey, 45% of those surveyed report spending less than $2,000 on monthly expenses in 2023. Thirty-seven percent report spending between $2,000-$4,000. Only 4% report spending more than $6,000 per month.
TSCL notes that Social Security benefits are modest, replacing roughly one-third of a middle earner’s average wages, according to an Actuarial Note from the Social Security Office of Chief Actuary. “Making matters worse, most older adults claim Social Security benefits before reaching full retirement age (59%) and receive permanently reduced benefits,” Johnson said, citing TSCL’s Retirement Survey.
The survey also found 19% claimed at full retirement age and receive the full unreduced amount, while only 7% claimed when older than full retirement age and receive a higher benefit due to the 8% per year delayed retirement credit up to age 70.
Johnson notes that while the official Social Security COLA will be announced in October, the real bottom line for retirees won’t be known until next year’s Medicare premiums are announced, which is typically in November. The Social Security Administration automatically deducts Medicare Part B premiums from Social Security benefits before the benefits are received.
In its annual report released in March of this year, the Medicare Trustees forecast monthly Part B premiums to increase from $164.90 in 2023 to $174.80 in 2024. But that estimate doesn’t include any significant new costs that come up after the estimate is released. One of the most significant new costs could be Medicare’s coverage for another new Alzheimer’s drug—lecanemab, known by the brand name Leqembi, which is expected to cost $26,000 per year without insurance.
“Based on Medicare Part B spending estimates, we forecast that the drug and related Part B services required to administer and monitor the patient for dangerous side effects of Leqembi would add about $5 per month to the Part B premium for everyone, potentially raising the 2024 premium to about $179.80 per month,” Johnson said Wednesday. “Altogether, most beneficiaries may see their Part B premium rise by almost $15 per month from 2023. Other costs could drive Part B premiums even higher.”
SEE ALSO:
• 2024 Social Security COLA Watch: Latest Forecast Steady at 3%
• Biggs: Social Security Exaggerates Shortfall of Retirement Income Replacement Rate