Social Security Gave Retirees a Big Raise in 2023. Next Year Will Be Different.
May 11, 2023
I wanted to take a moment to update you on the potential changes to Social Security benefits for 2024. As I'm sure you know, the Social Security Administration calculates annual cost-of-living adjustments (COLA) based on the Consumer Price Index (CPI) and inflation. However, recent projections show that as inflation starts to subside, the COLA for 2024 may be less than 3%.1
This projection is very much an early assessment. Gauging the increase for 2024 will be clearer toward the second half of the year, but I wanted to make sure you were aware of this potential change. Remember that even with a possibly smaller COLA this year, cooling inflation may also help create an even stronger economic environment overall.
As always, I'm here to answer any questions about Social Security benefits, your portfolio, or anything else you want to discuss further.
1. Barrons.com, April 12, 2023 2. Ssa.gov, 2023
By Elizabeth O'Brien
May 10, 2023
Social Security recipients could get a 3.1% raise next year, a steep decline from the 8.7% COLA bump they received in 2023, according to early projections.
The Social Security Administration will announce the actual cost-of-living adjustment for 2024 in October. The agency will compare the average consumer-price index from the third quarter of 2023 with average data from the same period last year to calculate the raise that Social Security’s nearly 70 million beneficiaries will receive.
The Senior Citizens League, a nonprofit advocacy organization, estimated the underlying data that goes into the calculation to arrive at 3.1% and will update its projection monthly until the actual raise is announced in the fall. “It’s a slow-moving thing,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League and author of the projection.
In April, prices rose at an annual, 4.9% pace, according to data released on Wednesday by the Bureau of Labor Statistics. The index that’s used in the COLA calculation is a subset of the CPI-U index called the consumer-price index for Urban Wage Earners and Clerical Workers, or CPI-W, which rose 4.6% in April over the last 12 months.
While the COLA is designed to help Social Security recipients retain their buying power, a study by The Senior Citizens League shows that it hasn’t kept pace with inflation as experienced by older adults. Between January 2000 and February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually, while the cost of goods and services purchased by typical retirees rose by 141.4%, averaging about 6.2% annually, the study found. Put another way, for every $100 a retired household spent on goods and services in 2000, that household could only buy about $64 worth today, according to the study.
The fastest-growing item in the study? Eggs, whose prices have soared 332% since 2000. Next is out-of-pocket prescription drug expenses, which have increased 311%, followed by heating oil at 279%.
“When you’re living on a fixed income, there’s only so much you can do” to make ends meet, Johnson said.