The Cost of Living Adjustment (COLA) on Social Security is an annual increase in the benefits provided to Social Security recipients to help them keep up with the rising cost of living and inflation. Every year, this increment in different, following the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in the cost of goods and services typically purchased by urban workers and clerical employees.
The upcoming adjustment is set to be a COLA reduction, since this increment will be smaller to the 5.9% from 2022, and the gigantic 8.7% increase in 2023, two of the biggest increases in several decades.
Social Security COLA in 2024: Increment Will Be around 3%
The general consensus among economists and policy experts is that Social Security COLA beneficiaries can expect a 3% in 2024. However, the optimism of these projections might be unfounded. Eagerly Awaiting the Finalized 2024 COLA, Anticipation surrounds the eagerly awaited announcement of the finalized Social Security COLA for the year 2024, set to be disclosed in mid-October.
Having said all this, retirees are projected to see a $55 increment, for an average 2024 benefit of $1,882, and a senior couple (both with benefits) could anticipate around $89 a month, for an average of $3,061.
Meanwhile, workers getting disability benefits will claim $44 extra, for an average of $1,527, widows/widowers will get $51 more setting their average income to $1,755, and widows/widowers with children $106 more, for a median income of $3,626.
When Will the Official Social Security COLA Be Announced and Paid?
The annual COLA adjustment is typically announced in October of each year, while the exact date when it will be disclosed is around mid-October, so retirees can anticipate learning the extent of their benefit increase.
Once the COLA is announced, the adjusted benefit amount becomes effective in December. Social Security beneficiaries will be notified of their new benefit amount through a mailed COLA notice and the Message Center on the My Social Security platform. In most cases, beneficiaries will receive their Social Security payments for December in January of the following year.
While it’s generally agreed upon that Social Security benefits will witness a 3% hike in 2024, retirees and other recipients may need to brace for a more modest raise.
Social Security benefits undergo yearly cost-of-living adjustments (COLAs) to safeguard retirees and other recipients against the erosive effects of inflation. This component of the program has proven vital, particularly in recent times. The sharp surge in inflation following the aftermath of the COVID-19 pandemic resulted in a remarkable 5.9% COLA in 2022, followed by an even more substantial 8.7% increase in 2023 making these the most significant raises in four decades.
Cooling Inflation and Its Implications
The past year witnessed a significant cooling of inflation, largely attributed to proactive measures undertaken by the Federal Reserve. Consequently, Social Security recipients are likely to see a considerably smaller increase in the coming year.
Prominent economists and policy experts from institutions such as Boston College, Morningstar, the Bipartisan Policy Center, and The Senior Citizens League estimate that the 2024 COLA for Social Security benefits could stabilize at 3%.
How does the CPI-W impact the calculation of Social Security COLA?
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) plays a crucial role in the calculation of Social Security Cost of Living Adjustments (COLA). The CPI-W is used to measure changes in the prices of a basket of goods and services, which include food and beverages, housing, clothing and apparel, healthcare, and education and communication.
The Social Security Administration (SSA) calculates COLA by comparing the average CPI-W of the third quarter of the current year with the average CPI-W of the third quarter of the last year a COLA was determined. If the average CPI-W of the current year third quarter is higher than the last year’s third quarter, the percentage increase is used as the COLA.