Social Security COLA Will Drop Significantly in 2024 — How Low Could It Go?
The falling U.S. inflation rate is good news for American consumers, but it could lead to a much smaller cost-of-living adjustment (COLA) for Social Security beneficiaries next year — possibly as low as 2% or less.
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That estimate was provided by the Senior Citizens League, a nonpartisan seniors advocacy group, based on the latest inflation figures. If the fiscal 2024 COLA does dip below 2%, it would be the smallest adjustment since 2020.
The COLA is determined every October by the Social Security Administration. The agency bases its calculation on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter compared with the prior year, CBS News reported. If there is no change, then the COLA is zero.
When the CPI-W increase is especially high — as it was during the 2022 third quarter — then Social Security recipients can expect a big bump in their monthly payments for the next fiscal year. That’s the case right now. Because of last year’s soaring inflation rate, the 2023 COLA is 8.7% — the highest in more than 40 years.
The Senior Citizens League’s projection for a much lower COLA in fiscal 2024 is based on the 12-month average rate for CPI-W, which has been on the decline. The overall inflation rate rose 6% for the 12 months ending February 2023, according to a report this week from the U.S. Bureau of Labor Statistics. That was the smallest 12-month increase since the period ending September 2021.
“Based on February inflation data, the [FY 2024] COLA looks like it will be below 3% and could fall into the 2% or even lower range by the third quarter if that 12-month average continues to decline,” Mary Johnson, the Social Security and Medicare policy analyst at the Senior Citizens League, wrote in an email to CBS MoneyWatch.
Her group will issue an official forecast for the 2024 COLA in May.
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A small adjustment next year could prove to be bad news for seniors, who have plenty of experience dealing with COLAs that don’t keep up with inflation. Even with this year’s historically high 8.7% COLA, not all seniors are convinced it is effective at battling high prices for food and other items.
As previously reported by GOBankingRates, a recent survey from The Senior Citizens League found that more than half (54%) of older consumers “remain unconvinced” that the 8.7% COLA will keep pace with rising costs in 2023. Roughly the same number of survey respondents reported that their household costs in 2022 rose by more than the current COLA.
That pessimism is mostly attributable to the struggles Social Security recipients had keeping up with last year’s inflation rate. Although they were given a 5.9% COLA in 2022 – which at the time was the highest in nearly four decades — the boost was almost immediately negated early last when the inflation rate soared above 7% and stayed there for nearly the whole year.
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