Social Security COLA 2024 estimates rose in an unexpected twist. Here's why.
Social Security recipients finally have something to cheer: The forecast for next year’s Social Security increase edged up on Wednesday even after the government said inflation cooled further in June.
Annual inflation in June eased to 3%, down from 4% in May and off a 40-year high of 9.1% in June 2022. It was also the smallest increase since March 2021, due mostly to a 16.7% decline in energy prices, although monthly energy rose 0.6%. Food rose 5.7%, but that was down from May’s 6.7% annual increase. Shelter, which includes rents, jumped 7.8% over the last 12 months but it was still lower than May’s 8% gain.
Lower inflation is generally welcomed because people are regaining their purchasing power, but Social Security recipients, used to seeing their potential cost-of-living adjustment (COLA) decline with slower inflation, got an unusual extra surprise. COLA is estimated at 3% next year, according to a forecast from The Senior Citizens League, a nonprofit seniors group. That’s much less than the four-decade high 8.7% COLA in 2023 but above last month’s estimate for a 2.7% increase for 2024.
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% last month to 3% based on the June data," said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
CPI breakdown: Inflation cools again in June as gains in grocery prices slow
Cautious optimism
Ebbing inflation coupled with a higher COLA is music to a Social Security recipient's ear, but Johnson warned that this could all change again.
"There are still three more months of data before the COLA is announced in October and this estimate could change," she said. COLA is determined using the average inflation of July, August and September months and then compared with the year-ago figure. The percentage difference between the two is the amount of the COLA.
Additionally, Social Security recipients won’t learn the bottom line until the Medicare Part B premiums are announced. Part B premiums are automatically deducted from most beneficiaries’ Social Security benefit.
"In many years, the Part B premium increase can take most, or even all, the COLA leaving little else to cover other rising prices," Johnson said.
In March, Medicare Trustees forecasted monthly Part B premiums would increase to $174.80 in 2024 from $164.90 this year.
"But that’s an estimate, and it doesn’t include any significant new costs that come up after the estimate is released," Johnsons said. "One of the most significant new costs could be Medicare’s coverage for a new Alzheimer’s drug —lecanemab, known by the brand name Leqembi which is expected to cost $26,000 per year without insurance."
Seniors are still reeling from 2021 and 2022 inflation
Annual COLAs are meant to ensure Social Security beneficiaries’ purchasing power isn't eroded by inflation. However, COLA hasn’t kept pace, and seniors were the only group that saw its share of poverty increase between 2020 and 2021, the Census Bureau said.
Even though inflation this year has been running below the 8.7% beneficiaries received, they haven't been able to recoup the losses they incurred in 2021 and 2022, when inflation reached a 40-year high, Johnson said.
“Inflation was so severe in 2021 and 2022 that the average Social Security benefit fell behind by $1,054, leaving 53% of retirees doubting they will recover because household costs rose more than the dollar amount of their COLAs,” she said.
Falling behind due to inflation has ignited the “unretirement” movement, or when a retired person returns to work. According to a survey by Paychex, 55% of retirees who went back to work said they did so because they needed more money, and 1 in 6 retirees was considering returning to work.
How is COLA calculated?
Social Security Administration (SSA) bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers, or CPI-W, from July through September. CPI-W largely reflects the broad CPI that the Labor Department releases each month but differs slightly. Last month, while annual CPI rose 3%, CPI-W increased 2.3%.
The Seniors Citizens League uses the most recent inflation data to keep a running projection of what COLA might be next year.
How many Americans qualify for the COLA increase?
About 70 million Americans receive benefits from programs administered by SSA, with retired workers and their dependents accounting for 76.9% of benefits paid in 2022.
Nearly 9 out of 10 people aged 65 and older received a Social Security benefit as of Dec. 31. Among them, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
In May, the average monthly check for Social Security beneficiaries was $1,701.62, according to SSA. A 3% COLA would mean about an extra $51 each month. (Here's more about the Social Security COLA increase for 2023.)
When is Social Security COLA announced?
The next COLA will be announced in October and be effective starting January 2024.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday.
This article originally appeared on USA TODAY: Social Security 2024 COLA predictions rise after CPI report
