Every October, the Social Security Administration announces its annual cost-of-living adjustment, an adjustment to the monthly benefits of 71 million beneficiaries meant to keep them abreast of inflation. The upcoming increase in benefits is likely to fall far short of this year’s 8.7% increase, with experts warning that some seniors around the U.S. are at risk of losing ground.
The 2024 cost of living adjustment (COLA) for 2024 is likely to be 3.2%, according to the Senior Citizens League, an advocacy group for older Americans. It is based on the latest inflation data, includingwhich found that prices rose at an annual rate of 3.7% in August due to higher gas costs.
That means headline inflation continues to run hotter than the 3.2% annual COLA adjustment expected by the Senior Citizens League. Even with this year’s 8.7% increase, which was the largest in four decades, many retirees say they are still behind, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
About 7 in 10 retirees said their monthly costs are about 10% higher than this time a year ago, she noted.
“COLAs are intended to protect the purchasing power of older consumers,” Johnson told CBS MoneyWatch in an email. “However, because Social Security benefits are modest at best, the dollar amount of the boost often falls short of actual price increases throughout the year.”
She added: “Prices remain high for housing, medical and food costs. These three categories alone can account for 80% of most retirees’ budgets.”
How does Social Security calculate COLA?
The reason a COLA can run lower than current inflation comes down to how the number is calculated.
First, the Social Security Administration relies on an inflation index that is slightly different than the main CPI that the Federal Reserve and economists use to measure price developments. The agency instead bases its COLA on what’s known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, which some critics say doesn’t accurately reflect the expenses of older Americans.
In August, the CPI-W rose 3.4%, slightly lower than the 3.7% increase in the CPI for all urban consumers, the main inflation index relied on by economists.
Next, the agency bases its COLA on the percentage increase in the CPI-W in the third quarter – July, August and September – compared to the previous year. If there is no increase between the two numbers, there is no COLA adjustment.
The average social security benefit
If Social Security increases the COLA by 3.2% next year, the average monthly retiree check would rise to $1,790, or $57.30 in additional benefits, the Senior Citizens League said.
But many retirees have monthly costs that exceed the average benefit, and the group finds that 52% of seniors say they spend more than $2,000 a month.
“Social Security benefits are modest, replacing about one-third of an average middle-wage wage,” Johnson said, citing an analysis by Social Security’s chief actuary.
Medicare premiums for 2024
Another key question for Social Security recipients is whether Medicare premiums will eat into retirees’ COLAs in 2024. Typically, Medicare announces its premiums in November.
Medicare premiums are a problem because the Social Security Administration automatically deducts Part B costs from monthly Social Security benefits before sending them to retirees. In March Medicare Trustees Forecast Part B monthly premiums would increase 6% to $174.80.
However, this forecast was issued before Medicare said it wouldthat which could cost $26,000 annually without insurance and could add to the program’s costs.