With less than two months until Social Security‘s 2024 COLA (cost-of-living adjustment) announcement, expectations are shaping up for the year ahead, especially for the 2024 Social Security benefit.
Social Security’s 2024 COLA
As of August, estimates point towards a 3% increase in Social Security’s 2024 COLA. While this news suggests upward movement in 2024 Social Security benefits, the reality of declining purchasing power cannot be ignored. Preliminary projections for next year’s cost-of-living adjustment indicate an average increase of $51 per month for Social Security recipients.
For all Social Security beneficiaries and particularly retired workers, a crucial date is on the horizon, less than two months away as many wait for their 2024 Social Security benefits. The spotlight shifts firmly onto Social Security’s 2024 COLA (cost-of-living adjustment).
According to Motley Fool, on October 12, 2023, the U.S. Bureau of Labor Statistics (BLS) will release the September inflation report, providing the final data piece required to calculate Social Security’s annual COLA. This adjustment is intended to prevent beneficiaries from losing purchasing power due to inflation.
In simple terms, the calculation of Social Security’s 2024 COLA involves comparing the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) reading in the third quarter of the current year with that of the previous year. If the current-year reading is higher, beneficiaries receive a COLA “raise.”
However, this “raise” is a bit different from the concept of a salary increase. It is designed to align with, not surpass, the U.S. inflation rate as measured by the CPI-W. This is distinct from a conventional raise which could outpace inflation.
Contrastingly, the outlook for Social Security’s 2024 COLA is more conservative.
What to Expect from the Social Security’s 2024 COLA?
So, how does Social Security’s 2024 COLA 3% translate for the average Social Security beneficiary and specific groups within the program?
Considering all 66.63 million Social Security beneficiaries in June 2023, the average monthly payout stood at $1,701.62. Assuming Social Security’s 2024 COLA is 3% on this figure, the average Social Security benefit across the program could reach $1,752.67 in 2024, a rise of about $51. Although the percentage increase is uniform, the actual rise in dollars can differ by category.
For instance, the average retired worker received $1,837.29 per month in June. Applying a 3% Social Security’s 2024 COLA would increase the average benefit to $1,892.41 in 2024, providing retired individuals an additional $55 per month.
Comparatively, around 7.5 million workers with disabilities earned an average of $1,486.42 in June 2023, while about 5.8 million survivor beneficiaries received $1,451.85 on average. A 3% Social Security’s 2024 COLA could elevate the average payout in 2024 for disabled workers to $1,531.01 (nearly $45 extra per month), and survivor beneficiaries could expect an average 2024 benefit check of $1,495.41—an increase of nearly $44 each month.
Despite the increase in benefits, the sobering truth is that purchasing power for retirees has been consistently decreasing. In May, The Senior Citizens League (TSCL) revealed a substantial discrepancy between Social Security’s aggregate cost-of-living adjustments since 2000 and the actual inflation experienced by seniors.
The root of this persistent decline in purchasing power lies in the CPI-W. Despite its introduction in 1975 as a step towards fairer Social Security’s 2024 COLAs, the CPI-W fails to accurately represent seniors’ spending patterns.
Seniors, who form over 80% of Social Security beneficiaries, have their essential expenses—like medical care and housing—marginalized in the CPI-W, which primarily reflects the spending habits of “clerical workers and urban wage earners.”
This discrepancy results in Social Security’s 2024 COLAs that struggle to match the real inflation pressures faced by seniors. Frustratingly, both major U.S. political parties agree on the CPI-W’s inadequacy in measuring inflation for Social Security beneficiaries. However, they’ve diverged on solutions, leaving a persistent loss of purchasing power unresolved.