The Social Security COLA, or Cost of Living Adjustment, is an annual adjustment made to Social Security benefits to help beneficiaries keep pace with the rising cost of living. In short, it is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks changes in the prices of various goods and services.
Mark your calendars, because on Thursday, Oct. 12, 2023, the September inflation statistics will be unveiled by the U.S. Bureau of Labor Statistics (BLS). This data will play a crucial role in determining the adjustments for Social Security’s cost-of-living for the next year.
The Awaited September Inflation Report for Social Security Administration
For those scratching their heads, COLA or the cost-of-living adjustment is how the Social Security Administration (SSA) way of explaining the occasional “boost” beneficiaries get. It’s meant to counterbalance inflation—the sneaky little way prices of everyday things tend to creep up. The goal? To keep the buying power of beneficiaries steady.
Here’s a tidbit: When we say “boost”, we’ve got it in quotes for a reason. Social Security’s COLA isn’t your typical raise. It’s set to reflect the ongoing inflation rates, unlike a work bonus which could surpass inflation.
Let’s dig a little bit more on how is this COLA determined: For nearly half a century (48 years, to be precise), the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has anchored America’s leading retirement scheme. And even though this index gets updated monthly, Social Security zeroes in on just three of those months: July, August, and September.
Here’s how it works: The SSA takes the average CPI-W from the third quarter (Q3) of the current year and pits it against the average from Q3 of the year before. If there’s an uptick, it means they’ve got inflation in their hands. The size of the increase beneficiaries can expect? It’s the gap in the percentages of the two Q3 results, all neat and tidy, rounded to the closest one-tenth of a percent.
Now, here’s an interesting fact: If prices tumble instead of climbing (called deflation), there’s no change in benefits for the next year. And guess what? This curveball has only been thrown thrice since 1975.
Social Security’s 2024 COLA Gearing Up for a Boost
Last Wednesday, on September 13th, the eyes of many were glued to the BLS (Bureau of Labor Statistics) as it rolled out the inflation data for August. This report is the penultimate piece in solving the Social Security’s COLA puzzle for the coming year. If we piece together earlier predictions with the fresh-off-the-press August data, it’s becoming clear: Social Security’s COLA for 2024 is likely on the rise.
Prior BLS data for June and July hinted at a possible COLA increase. And if you’ve been listening to the buzz from The Senior Citizens League, a neutral seniors’ advocacy group, they’ve been hinting at a 3% COLA for 2024. However, after digesting the August inflation intel, Mary Johnson, a policy guru from TSCL, nudges that estimate to a expected 3.2%.
So, what does a 3.2% COLA really translate to? As of August 2023, the regular retiree had a monthly Social Security check amounting to $1,840.27. With a 3.2% COLA, that’s a sweet additional $59-ish every month for the usual retired folk come 2024.
But that’s not all! Beneficiaries with disabilities and survivors won’t be missing the party. Crunching the numbers based on August’s data, workers with disabilities, who typically received about $1,486.83, would see nearly an extra $48 monthly. And for the beneficiaries carrying the legacy of those departed, with an average of $1,454.48, they’d pocket almost $47 more every month.
When Will Social Security Increase Announced?
So, what’s stirring the pot for a heftier 2024 COLA? Well, it’s the resurgence of U.S. inflation. Even though energy expenses might have taken a tiny dip over the last year, there’s been a twist. The West Texas Intermediate crude oil just spiked to its top tier in almost a year just last week. And if you’re wondering what that means for you: brace yourself for heftier fuel prices.
Keep in mind that the actual amount of the adjustment may vary slightly from the estimates, because the September inflation data must still be decanted and added to the annualized CPI-W. It is expected that the final percentage of that month will be announced after October 12, and after that, the official COLA for 2024 will be announced.
Those increased benefits will take effect in January 2024 for all the Social Security recipients and beneficiaries. Those who receive SSI, on the other hand, will see their first adjusted benefits near the end of December 2023.