Social Security recipients can cheer: the 2024 COLA forecast just rose

Social Security COLA 2024 estimates rose in an unexpected twist: After the government reported further cooling of inflation in June, Social Security recipients finally have something to cheer about: The forecast for next year’s increase increased on Wednesday. 

June’s annual inflation rate was 3%, down from 4% in May and off a 40-year high of 9.1% in June 2022. In addition, it represented the smallest rise since March 2021, mainly due to a 16.7% decline in energy prices, although energy prices rose 0.6% on a monthly basis. Food prices rose 5.7%, but that was down from May’s 6.7% increase. Over the past 12 months, shelter, including rents, rose 7.8%, but still fell short of May’s 8% increase.

Social Security recipients can cheer: the 2024 COLA forecast just rose
Social Security recipients can cheer: the 2024 COLA forecast just rose

Social Security recipients, used to seeing their potential cost-of-living adjustment (COLA) decline with slower inflation, got an unexpected extra surprise with lower inflation. In its forecast, The Senior Citizens League, a nonprofit seniors group, estimates the COLA at 3% next year.  The rate is much lower than the four-decade high 8.7% COLA in 2023, but above last month’s estimate of 2.7%. 

The average trailing twelve-month inflation rate Johnson uses to project inflation in coming months rose slightly, affecting “our COLA estimate rising from 2.7% to 3% based on June data,” said Mary Johnson, Senior Citizens League policy analyst.

Cautious optimism

It’s good news for Social Security recipients to see inflation ebbing along with a higher COLA, but Johnson warned that this could all change again.

There are still three months of data to be collected before the COLA is announced in October, so this estimate may change. A COLA is calculated by comparing the average inflation of July, August, and September to the prior year. COLA is calculated as the percentage difference between the two.

Social Security recipients won’t know the bottom line until Medicare Part B premiums are announced. The Part B premiums are automatically deducted from the Social Security benefits of most beneficiaries.

“In many years, the Part B premium increase can consume most, if not all, of the COLA, leaving little to cover other price increases,” Johnson said.

According to the Medicare Trustees, monthly Part B premiums will rise to $174.80 in 2024 from $164.90 in 2019.

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This is an estimate, so it does not include any significant new costs that may arise after the estimate is released,” Johnsons said. One of the most significant costs could be Medicare’s coverage of a new Alzheimer’s drug, lecanemab, known as Leqembi. It is expected to cost $26,000 per year without insurance.”

Seniors are still reeling from 2021 and 2022 inflation

The purpose of annual COLAs is to ensure that Social Security beneficiaries’ purchasing power is not eroded by inflation.  The Census Bureau reported that COLA has not kept pace, and seniors were the only group whose poverty share increased between 2020 and 2021.    

According to Johnson, beneficiaries haven’t been able to recoup the losses they incurred in 2021 and 2022, when inflation reached a 40-year high.  

In 2021 and 2022, inflation was so severe that the average Social Security benefit fell behind by $1,054, causing 53% of retirees to doubt they will recover. 

Inflation has sparked the “unretirement” movement, where retired individuals return to work. 55% of retirees who returned to work said they did so because they needed more money, while 1 in 6 retirees were considering returning to work, according to Paychex.

How is COLA calculated? 

The Social Security Administration (SSA) bases its COLA each year on the average annual increase in the consumer price index for urban wage earners and clerical workers, or CPI-W. There are some slight differences between the CPI-W and the broad CPI released by the Labor Department each month. While the annual CPI rose 3% last month, the CPI-W increased 2.3%.  

In order to predict what COLA might be next year, the Senior Citizens League uses the most recent inflation data.

How many Americans qualify for the COLA increase? 

SSA administers programs for 70 million Americans, with retired workers and their dependents accounting for 76.9% of benefits.   

As of Dec. 31, nearly nine out of ten people over 65 received a Social Security benefit. The percentage of men and women who rely on Social Security for 90% or more of their income is 12% and 15%, respectively.

According to the Social Security Administration, the average monthly check for beneficiaries was $1,701.62. An increase of 3% would mean an additional $51 per month. The Social Security COLA increase for 2023 can be found here.

When is Social Security COLA announced?

Starting in January 2024, the next COLA will be announced in October.   

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