What Will the Social Security COLA Raise Be for 2024?

Each October, the Social Security Administration announces the cost-of-living adjustment, or COLA, for the following year. This rate is applied to the checks that will be distributed to beneficiaries every month. The COLA is determined after a review of inflation data and the rate accounts for current and upcoming trends.
 
As we look ahead, it can be helpful to know:

Some experts predict a COLA raise of 3% for 2024.

The Social Security Administration uses the percentage changes of the consumer price index during the third quarter from one year to the next when calculating the upcoming COLA.

The consumer price index for June 2023 came in at 3%, according to the U.S. Bureau of Labor Statistics. The rate indicates that, on average, the items indexed rose in price by 3% during the previous 12 months. It was the smallest increase since the period ending in March 2021. Overall inflation in 2023 has been lower than in 2022, which saw 40-year highs such as 9.1% in June of that year.

“The declining inflation rate informs most economists’ predictions that the 2024 COLA will fall between 2.7% to 3%,” says Krieg Tidemann, assistant professor of economics at Niagara University. The Senior Citizens League has estimated the COLA could be 3% for 2024.

While this may seem low at first glance, it may not be as painful as some fear. “Ultimately, the Social Security Administration determines its cost-of-living adjustment based on its expectations for the rate of inflation in the next year,” Tidemann says. “If inflation is less pernicious, as economists expect in 2024, Social Security checks do not require as high of an upward adjustment to maintain their price-adjusted value to seniors.”

In 2023, the COLA was 8.7%, which was the largest increase since 1981. This came following a 5.9% increase, which was the highest in four decades at the time it was issued. A paycheck of $1,000 in 2021 would have increased by $59 in 2022 to $1,059. Following the COLA of 2023, the amount would have gone up by an estimated $92 to be $1,151. An additional 3% bump would lead to an increase of just $35 on the 2023 payout, making a benefit amount of $1,186 in 2024.

Given this, some may view a lower rate, such as 3%, as less of an increase. “While (the) 2024 COLA is likely to be down compared to the last two years, remember that COLA is directly tied to inflation,” says Jeremy Keil, financial advisor at Keil Financial Partners in New Berlin, Wisconsin. “The only reason COLA was so high in 2022 and 2023 is because inflation was so high in 2021 and 2022.”

This could indicate a sign of continued cooling inflation, and rates that might coincide with historic averages during the previous decades. “Prior to 2022, the 30-year COLA average was 2.4%, so hopefully this is a sign that inflation is returning to ‘normal,’” Keil says.

The COLA increases in recent years may be helping retirees cope with current costs, and in some cases, to have more discretionary income than in the past.

“Given that seniors may be temporarily benefiting from the current 2023 COLA being well above the current rate of inflation, those with the means to increase savings over the remainder of 2023 can stand to benefit,” Tidemann says. “In particular, given 15-year highs in interest rates on short-term (certificates of deposit) or money market savings accounts, seniors may wish to transfer available assets to these safe and relatively liquid saving instruments that offer a better rate of return than traditional savings and checking accounts.”

In addition, retirees could search for temporary or seasonal jobs to help boost income. If you are over your full retirement age, there won’t be limitations on what you can earn before benefits are reduced. Additional supplemental income could come from retirement accounts such as a 401(k), IRA, or pension.

As retirees think about the upcoming months, it may be wise to review current living costs.

“Look for ways to save on groceries, monthly bills and anything else you can think of,” says David Bakke, financial expert at Dollar Sanity based in Norcross, Georgia.

Another way to prepare could be by pushing the “pause” button on plans. “To be on the safe side, you may want to postpone or delay any discretionary spending like travel or larger personal purchases,” Bakke says. “It just makes sense since retirees will be dealing with an unknown until that number comes out. You can always splurge a little later on if you were overcautious during this financial event.”