The Social Security 2024 COLA adjustment is right around the corner. Every October, the Social Security Administration (SSA) announces whether there will be a cost of living adjustment or not and if so by how much.
The process is simple.
The SSA compares the 3rd quarter (July, August and September) Consumer Price Index for Urban Wage Earners And Clerical Workers (CPI-W) average to the current year’s third quarter.
If the current year CPI-W is larger than the previous year, then there is inflation. This, historically will lead to an increase in everyone’s Social Security check.
This happened in 2022 when there was a 5.9% COLA for retirees and again in 2023 when retirees received a significant increase of 8.7%.
Please, do not expect the same Social Security COLA increase for 2024 regardless of what inflation may be doing.
CPI W Factors:
According to the Bureau of Labor the CPI-W is “based on the expenditures of households included in the CPI-U definition that meet two requirements:
1. More than one half of the household’s income must come from clerical or wage occupations, and
2. At least one of the household’s earners must have been employed for at least 37 weeks during the previous 12 months.
The CPI-W population represents approximately 30 percent of the total U.S. population”.
CPI W Formula:
To determine if there will be any COLA increase and how high it may be is quite simple as the formula is:
Subtract the prior year 3rd quarter average CPI W from the current, then divide that by the prior year CPI W to arrive at the percentage increase.
In 2021 the CPI-W 3rd Qtr. avg. = 268.4207
By 2022 the CPI-W 3rd Qtr avg. = 291.9007
Step 1: 291.9007 (2022) – 268.4207 (2021) = 23.48.
Step: 23.48 / 268.4207 = 8.74% which Social Security rounds down to 8.70%
This year (2023), inflation has slowly waned due mainly to a decrease in energy costs. This in turn has helped to lower costs in several of the categories. Unfortunately for seniors, certain expenses have remained high including the cost of housing, food, and medical care.
COLA Outlook for 2024
Although there is always room for surprises, its looking more likely that the Social Security increase for 2024 will be in the 2% to 3% range.
We know this simply because the 3rd Quarter CPI-W in 2022 is 291.9007 while the 2nd Quarter in 2023 is 298.502.
The Social Security 2024 COLA, right now looks to be 2.26% if applying actual law.
The math behind this:
Step 1: 298.502 – 291.9007 = 6.6013
Step 2: 6.6013 / 291.9007 = 2.26%
Keep in mind that the 3rd Quarter is not yet over and inflation can easily run out of control.
If it does, actually, run out of control then yes the COLA may be higher, but in order to see results that are similar to 2023’s COLA the rate of inflation would have to increase by another 6.0% each month for the next 3 months.
That is hard trade off for only a slight increase in income for the year.
However, like most things emanating from Washington, there is always a political component. With 2024 being an election year the goal of every politician is to keep senior voters happy. There just may be a sliver of slightly higher than expected COLA for Social Security 2024.
But, do NOT get your hopes up as the current COLA by law is looking to be no higher than 2.26% in 2024.
Healthcare Retirement Planners will alert you when final Social Security 2024 COLA numbers are released in October. There is an additional caveat for those who collect Social Security and also have Medicare. You need to be mindful of Medicare 2024 Part B and D premiums. These premiums are deducted from your Social Security check, and will likely increase. Stay tuned!