Social Security: Here’s What Your Estimated COLA Would Be in 2024 if ‘Better’ Method Was Used To Calculate Increase
Written by
David Nadelle
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Joe Evans
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In August, 71,276,000 Americans received Social Security, Supplemental Security Income, or both, according to the Social Security Administration. For those recipients, the annual cost-of-living adjustment (COLA) can make a huge difference for those struggling to make ends meet.
When the U.S. Bureau of Labor Statistics (BLS) releases September’s inflation report on Oct. 12, 2023, the SSA will have the final piece of the puzzle required to determine 2024’s COLA and eager seniors will be able to figure out how much they will receive every month.
Estimates have wavered along with inflation rates this year. While inflation has dropped steadily since the historic highs of last year, annual rates have risen for the past two months. Prognosticators, however, have next year’s COLA projected at 3% or 3.2%, but well below 2023’s significant increase of 8.7%.
“With a cost-of-living adjustment, or COLA, of 3%, the average monthly Social Security check for retired workers would rise by about $55 to $1,892 in January from $1,837 this year,” according to The Wall Street Journal.
According to Money, two proposed pieces of legislation have been introduced by Democratic congresspersons to bolster the purchasing power of seniors, which has dwindled amid higher prices and interest rates.
COLA is typically measured by analyzing the Consumer Price Index’s CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers month-to-month. The two new acts, the 2023 Fair COLA for Seniors Act and the Social Security Expansion Act, propose using the CPI-E, the Consumer Price Index for Americans 62 years of age and older, as its base.
The CPI-E is tracked by the BLS but not used widely due to its perceived limitations, namely, because it measures prices changes on items specifically used by the elderly (like prescription medication). However, when calculating COLA for Social Security, it makes perfect sense to use the neglected index, claim the bills’ sponsors and advocates.
“Using a COLA that actually reflects how retirees spend their money — especially in health care — is a no-brainer that will increase benefits and make Social Security work better for the people it serves,” said Rep. John Garamendi (D-CA), who introduced the Fair COLA for Seniors Act in February.
Economists argue that the CPI-E isn’t the Social Security savior that seniors think it is because it lacks accuracy and tracks lesser-quality survey data due to using a smaller sample size than the CPI-W does. It is a worse measurement than the CPI-W because it doesn’t account for year-to-year changes in spending patterns, said Marck Goldwein, senior VP and policy director for the nonprofit Committee for a Responsible Federal Budget.
“I guarantee you nobody would be advocating the CPI-E — not a single person — if the CPI-E was going slower than generalized inflation on an ongoing basis, but that’s exactly what it’s done the last two years,” Goldwein stated.
Additionally, CPI-E doesn’t take into account substitution bias (switching from more expensive products to cheaper ones as prices change), true housing costs and discounts that seniors rely so heavily upon.
Furthermore, as Goldwein notes, although adopting the CPI-E to calculate COLA would potentially amount to an increase of 0.2% a year, the forthcoming Social Security insolvency issue will likely negate any positives using the index would bring (it might even quicken the insolvency of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds).
Social Security recipients would’ve reaped the benefits of an 8% increase if the SSA used CPI-E to determine COLA last October, rather than the 8.7% they are enjoying now, claims Goldwein.
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