Millions of Americans dependent on Social Security will see a 3.2% cost-of-living adjustment (COLA) to their monthly benefits starting in January 2024, the Social Security Administration announced today.
The increase means the average recipient will get about $50 more per month, or over $600 more for the year. With inflation coming down from 40-year highs but still elevated, the COLA for 2024 will be substantially lower than the 8.7% bump retirees and other beneficiaries received this year.
“This will help millions of people keep up with expenses,” said Kilolo Kijakazi, acting commissioner of the SSA. Still, senior advocates say the relatively modest increase shows the importance of expanding and protecting Social Security benefits.
Who Gets the Increase?
About 71 million Americans currently receive Social Security payments, including retirees, disabled individuals and children. The 3.2% COLA will impact all of these groups.
The average monthly retirement benefit currently stands at $1,677. With the COLA, this will rise to around $1,730 per month starting in January. Higher benefit individuals will see larger dollar amount increases.
For example, if you get $2,000 per month from Social Security today, you would get about $64 more per month beginning January 2024.
What Does This Mean for Household Finances?
“Retirees can rest a little easier at night knowing they will soon receive an increase in their Social Security checks to help them keep up with rising prices,” said AARP CEO Jo Ann Jenkins in a statement.
Her comment underscores the dependence millions of seniors have on Social Security for basic living expenses. For the nearly half of Americans over age 65 who receive at least 50% of their income from the program, the COLA aims to help them maintain purchasing power in an inflationary environment.
While consumer prices are starting to moderate, they remain elevated well above the Federal Reserve’s 2% target. Seniors, in particular, feel the pinch from high healthcare, housing and food costs. An extra $50 or so per month from Social Security will provide welcome relief.
COLA Formula Based on Consumer Price Index
By law, the annual COLA adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) calculated by the Bureau of Labor Statistics. The CPI-W tracks a broad basket of consumer goods and services and their changing prices.
Specifically, Social Security COLAs are determined using the average CPI-W reading from the third quarter (July to September) of the current year versus the prior year. This September’s CPI-W showed prices up 8.7% over the past year, driving the 2023 COLA to the same amount.
For the 2024 adjustment, the SSA compared the average CPI-W for Q3 2022 versus Q3 2023. With inflation moderating, this generated a 3.2% year-over-year increase, and hence a 3.2% COLA.
Calls to Use Senior-Specific Inflation Index
While the CPI-W determines COLAs automatically under current law, there have been calls to shift to another Bureau of Labor Statistics index called the CPI-E.
As its name suggests, the CPI-E tracks inflation based on the typical spending patterns of Americans aged 62 and up. It places more weight on health care and housing costs compared to the CPI-W.
In recent years, the CPI-E has run slightly higher than the CPI-W. This suggests the current COLA formula may understate true inflation for seniors.
Shifting to a CPI-E basis for Social Security adjustments would require an act of Congress, however. With legislative priorities focused elsewhere, experts do not expect any change to the COLA formula in the near future.
Outlook for Social Security Finances
While COLAs provide some help, there are bigger questions about the financial sustainability of the Social Security program itself in the coming decades.
The most recent Social Security Trustees report projects the system will only be able to pay 77% of scheduled benefits beginning in 2033 without reforms. The administration says the Social Security Trust Fund will become insolvent at that point.
To shore up finances, lawmakers will need to cut benefits, raise payroll taxes or enact some combination. But there has been little progress toward a political solution.
Most Americans oppose benefit cuts, according to the AP-NORC poll earlier this year. Yet raising taxes is also controversial.
For now, recipients are left hoping Congress can compromise on ways to put Social Security on steadier ground.
Seniors Say Any COLA Helps Meet Costs
Seniors like 83-year old Alfred Mason of Louisiana say they welcome any COLA increase to their Social Security payments.
“Any increase is welcomed, because it sustains us for what we are going through,” Mason said.
With overall inflation still exceeding 6% as of August 2022, Mason said any extra income “would be greatly appreciated.”
Other retirees receiving Social Security payments echoed the same sentiments. They said health care, food and other essential costs continue rising sharply, testing budgets even with this year’s historic 8.7% benefit hike.
Knowing a 3.2% COLA is coming in 2024 provides some reassurance. But seniors also understand the payment bump likely won’t match the actual rate of inflation.
For Social Security beneficiaries, the January increase will provide modest relief. But with the program’s long-term issues still unresolved, they will continue facing uncertainty about just how far their benefits will stretch when prices are still climbing.