The Latest COLA Forecast: Here’s How Much Social Security Benefits Could Increase in 2024
SSA COLA
Social Security undergoes several important changes each year, the most anticipated of which is the cost-of-living adjustment (COLA). Rampant post-pandemic inflation led to unusually large COLAs of 5.9% in 2022 and 8.7% in 2023, but the latest inflation data from the Labor Department points to a smaller increase in Social Security benefits next year.
However, policy analyst Mary Johnson of The Senior Citizens League recently upped her COLA forecast to account for an acceleration in August inflation, and beneficiaries are still on pace to get an above-average raise in 2024.
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How Social Security’s annual cost-of-living adjustment (COLA) is calculated
Social Security payments get an annual cost-of-living adjustment (COLA) to offset the effects of inflation. Without that built-in protection, benefits would effectively lose value as prices trend higher across the economy over time. Case in point: $100 in Aug. 2013 has the same purchasing power as $131.28 in Aug. 2023, according to the Labor Department.
The size of the annual COLA depends on fluctuations in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a metric that tracks how prices change over time across more than 200 spending categories. Specifically, the average CPI-W from July, August, and September of the current year is divided by the average CPI-W from the same months in the prior year, and any percent increase becomes the Social Security COLA in the following year.
Social Security benefits could increase 3.2% in 2024
The Social Security Administration cannot finalize the 2024 COLA without September inflation data, which is scheduled for release on Oct. 12 at 8:30 AM ET. But the Labor Department did publish August inflation data last week, meaning Social Security recipients now have a little more insight into how benefit payments could change next year.
The chart below details the CPI-W data points pertinent to the 2024 COLA calculation.
| CPI-W 2022 | CPI-W 2023 | CHANGE | |
|---|---|---|---|
| July | 292.219 | 299.899 | 2.6% |
| August | 291.629 | 301.551 | 3.4% |
| September | 291.854 | Available Oct. 12 | Available Oct. 12 |
Data source: The Social Security Administration.
The chart above shows that CPI-W inflation accelerated to 3.4% in August, up from 2.6% in July. That upward momentum was primarily due to higher gasoline prices, and it prompted policy analyst Mary Johnson of The Senior Citizens League to increase her 2024 COLA forecast.
Johnson now expects Social Security benefits to increase 3.2% next year, an upward revision from her previous forecast of 3.0%. That number may seem paltry to some readers, especially after getting a colossal 8.7% COLA last year, but a 3.2% raise would still be above the 20-year average of 2.6%.
There is another silver lining to a 3.2% COLA: It falls below the 3.3% COLA the Board of Trustees used as a baseline assumption in its latest examination of the Social Security trust funds’ financial health. The Social Security program is already facing a serious funding shortfall that could necessitate benefit cuts in 2034. A bigger-than-expected COLA in 2024 could accelerate that timeline. In fact, that happened after the 8.7% COLA in 2023.
What a 3.2% COLA means for Social Security beneficiaries
Generally speaking, Social Security provides income to four groups of beneficiaries: retired workers, spouses, survivors, and disabled workers. The average monthly benefit paid to each group in August is detailed below:
- Retired workers: $1,840.27
- Spouses: $889.61
- Survivors: $1,454.48
- Disabled workers: $1,486.83
Here is how the average benefit paid to each group would change if Social Security does indeed get a 3.2% COLA next year:
- Retired workers: $1,899.16 ($58.89 more)
- Spouses: $918.08 ($28.47 more)
- Survivors: $1,501.02 ($46.54 more)
- Disabled workers: $1,534.41 ($47.58 more)
Readers should remember the 3.2% COLA is not set in stone. The Social Security Administration will issue a press release with an official figure following the publication of September CPI-W data next month.
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SSA COLA History
The term “SSA COLA” refers to the Social Security Administration’s Cost of Living Adjustment. This is an annual adjustment made to Social Security and Supplemental Security Income (SSI) benefits in the United States to account for inflation and changes in the cost of living. Here’s a brief history of SSA COLA:
- 1975: The first COLA: The Social Security COLA was introduced in 1975 as a way to protect the purchasing power of Social Security benefits from the eroding effects of inflation. The initial COLA was 8.0%.
- Annual adjustments: Since its inception, COLAs have been applied annually, with the adjustments generally taking effect in January of the following year.
- Calculation method: The COLA is calculated based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures the cost of goods and services typically purchased by urban wage earners and clerical workers.
- Historical COLAs: COLAs have varied in size from year to year, depending on the rate of inflation. Some years have seen significant increases, while others have had more modest adjustments or none at all. For example, during periods of low inflation, there may be no COLA.
- Temporary freezes: There have been a few instances in history where there was no COLA adjustment. This can occur when the CPI-W does not show a significant increase in the cost of living. For instance, there were no COLAs in 2010, 2011, and 2016.
- Recent history: In the years leading up to my knowledge cutoff date in September 2021, COLAs had been relatively small due to low inflation rates. For example, the COLA for 2021 was 1.3%, and for 2020, it was 1.6%.