COLA Countdown: Bracing for A Drop-off from the Past Two Years - AMAC; GoBankingRates

We’re about a month and a half away from the official announcement of 2024’s Social Security cost-of-living adjustment (COLA), and the airwaves have come alive with commentary about what is expected to be a substantial reduction from the 2022 (5.9%) and 2023 (8.7%) adjustments. Throughout the year, there have been news accounts of the gradual reduction in monthly consumer price index (CPI) calculations as the U.S. economy recovers slowly from its 40-year high inflation rate, so COLA expectations for next year should be similarly reduced. Most projections popping up in the media these days put the 2024 adjustment at somewhere around 3%, so the element of surprise should be somewhat diluted by mid-October when the announcement is made.

Most seniors intuitively know that their costs are rising faster than the CPI-W-based monthly benefit adjustments. Since CPI-W data represents input from workers, this segment of the population logically has a different spending pattern than that of the typical retiree. Take healthcare as an example, where retired seniors can expect to spend about a quarter of their income on doctor visits, prescription drugs, and the like compared to 7% to 10% spent by younger workers. With the CPI-W calculation based on the lower percentage, the weighting tends to be skewed against older citizens. This COLA calculation shortcoming has been recognized in legislative work aimed at resolving Social Security’s long-term solvency problem, and bills have been introduced to base the cost of living adjustment on a new measurement—the Consumer Price Index for the Elderly or CPI-E—that more accurately reflects how retired seniors spend their available money. Whether any changes in the COLA calculation process materialize is uncertain at this point, and will likely be a factor when Congress, eventually, tackles the solvency issue.

In the meantime, as seniors look ahead at not only next year’s benefit adjustment, but the longer term as well, now is a good time to think about ways to avoid overestimating future Social Security income. GoBankingRates’ Ashley Donohoe provides some thoughts in a post today on their website. Check it out here.

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