A Look-ahead at Next Year’s Cost-of-Living Adjustment…It Won’t be Pretty!
Social Security beneficiaries are still catching their breath from last year’s big run-up in inflation, using the extraordinary 8.7% COLA to fill some of the holes in their monthly expenses. The 2023 COLA was the largest in four decades, providing some breathing room for those caught in the crosshairs of rising costs.
Remember, though, that the 8.7% boost is merely a catch-up measure, allowing Social Security beneficiaries to recover some of the ground lost to last year’s inflation. But if, as expected, inflation continues to eat away at beneficiaries’ budgets, the breathing room will continue to steadily erode. For that reason, many are already wondering how the COLA process is shaping up for 2024. And here’s where the predictions cast a shadow over any optimism generated by this year’s benefit increase.
For background, note that each year’s COLA calculation results from comparing the third quarter average Consumer Price Index[1] each year to the same average from the preceding year. The result of dividing the current year’s average by the previous year’s average produces the COLA for the following year. For 2023’s adjustment, the 2022 third-quarter average was 291.901 and the comparable figure for 2021 was 268.421, producing the 8.7% benefit addition.
Here’s where the shadow comes in…the monthly CPI-W figure has been dropping steadily from its October peak, the result of efforts to bring the rate of inflation down from its 40+year high. Assuming the downward trend—or even a leveling off—continues through the third quarter, the 2024 COLA will likely be zero, causing Social Security beneficiaries to continue steadily losing ground.
A study by the Senior Citizens League adds definition to the “losing ground” scenario, suggesting that since 2000, the types of expenses most impactful to seniors (e.g., home heating, prescription drugs, Medicare Part B premiums, etc.) have grown about 130% compared to a 64% increase in Social Security benefits.
As suggested in this post’s title, this is not a pretty situation!
[1] Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)