The most important day of the year for approximately 67 million Social Security recipients is just 25 days away.
On Thursday, October 12, 2023, the U.S. Bureau of Labor Statistics (BLS) will release its September inflation report. This report provides the final piece of the puzzle needed to calculate your Social Security cost of living adjustment (COLA) for next year.
Social Security’s upcoming cost of living adjustment announcement is attracting attention.
COLA is a fancy term used by the Social Security Administration (SSA) to describe the “raise” beneficiaries receive to account for inflation, or increases in the prices of goods and services they’ve been fighting for. Ideally, benefits should increase in line with inflation so that program beneficiaries do not lose purchasing power.
Additionally, note that “raise” is enclosed in quotes. This indicates that her COLA for Social Security is designed as follows: match Current inflation rate. This is different from the pay increases that employees may receive, which can exceed the rate of inflation.
For the past 48 years, the Consumer Price Index for Urban Wage and Office Workers (CPI-W) has been the inflationary nexus for America’s top-tier retirement systems. However, even though CPI-W is reported on a monthly basis, only three months (July through September) are considered in Social Security’s annual COLA calculation.
SSA takes the average CPI-W measurement for the third quarter (Q3) of the current year and compares it to the average CPI-W measurement for the third quarter of the previous year. If the value is increasing, it means inflation is occurring. The size of the dividend increase that beneficiaries will receive next year is simply the percentage difference between his two third-quarter measurements, which he rounds to the nearest tenth.
Even in the rare case that deflation occurs and prices fall compared to the previous year, the next year’s benefits will remain the same. This has only happened three times since 1975.
Social Security COLA in 2024 will gradually increase
Last week, on Wednesday, September 13th, the BLS released its August inflation report. This is the second of three pieces of the puzzle needed to calculate the Social Security cost-of-living adjustment. Based on previous estimates and information received through the August inflation report, next year’s “raise” would look progressively higher.
Following the past two BLS inflation reports (i.e., the June and July inflation reports), The Senior Citizens League, a nonpartisan senior citizen advocacy group, announced that the Social Security COLA in 2024 will be 3%. estimated. However, following August’s inflation report, TSCL senior policy analyst Mary Johnson now believes the program’s COLA could reach 3.2%.
What does a 3.2% COLA really mean in dollars? As of August 2023, the average retired worker was taking home a check totaling $1,840.27 each month. A 3.2% COLA would put about $59 more per month in the typical retired worker’s pocket in 2024.
Disabled workers and surviving family beneficiaries are not ignored either. Based on monthly payments of $1,486.83 for disabled workers and $1,454.48 for all surviving beneficiaries as of August, a 3.2% cost-of-living adjustment would result in approximately $48 per month for long-term disabled workers; For long-term disabled workers, that would add nearly $47 a month each. Survivors of deceased workers.
The catalyst behind this potentially more attractive “raise” in 2024 is the recovery in US inflation. For example, while energy costs are down slightly on an unadjusted trailing-12-month basis, as of August, West Texas Intermediate crude oil hit a 10-month high last week. In other words, pump prices are starting to rise again.
Furthermore, core inflation remains high. “Core inflation” takes food and energy costs out of the equation. Notably, shelter costs increased by 7.3% year-on-year, with shelter accounting for the largest share of any spending category.
Social Security’s 2024 COLA could be a double whammy for retirees
Given that beneficiaries have only enjoyed a COLA of more than 3% three times in the past 14 years, even if it’s far from the historic 8.7% increase they received this year, the COLA in 2024 will be 3.2%. % would be welcomed.
Unfortunately, Social Security’s 2024 COLA is becoming something of a double-edged sword for retirees. No matter how big or small the “raise” you receive, you’re in for a double whammy.
Perhaps the biggest problem for the nearly 50 million retired worker Social Security recipients is that their Social Security funds are losing purchasing power over time. Frankly, the CPI-W does a terrible job of accounting for inflation, which matters to seniors.
The problem with CPI-W is in its name. This is an inflation index based on the spending habits of “urban wage earners and office workers.” These are often working-age Americans who do not receive Social Security benefits.
Meanwhile, more than 80% of Social Security recipients are over 62 years old. Allowing CPI-W to determine annual COLAs has led to the underestimation of important spending categories for seniors (such as shelter and health care). The net result is a 36% loss in purchasing power since the turn of the century, according to TSCL. A “raise” to the 3.2% COLA, or somewhere around this, would reverse this sustained loss of purchasing power over time, especially as shelter inflation remains well above historical norms. You can not.
But that’s not the only concern for retirees in 2024.
In late March, a Medicare Administrative Board report predicted Part B premiums would increase by nearly $10 per month next year (from $164.90 per month to $174.80 per month). Medicare Part B covers outpatient services, and Social Security recipients often have their Part B monthly premiums automatically deducted. Even though Part B premiums decreased last year, which is truly rare, an estimated 6% increase in Part B in 2024 would completely eliminate the Social Security COLA for many low-income recipients. will be canceled out.
To make matters worse, the estimates in the Medicare Administrative Commission report may still be modest. If the Alzheimer’s disease drug Rekenbi, which costs $26,500 a year, is approved by the U.S. Food and Drug Administration in 2023, Part B premiums could rise by $5 a month in 2024, according to Mary Johnson. It is said that there is.
In any case, the cost of living adjustment by Social Security in 2024 does not seem to have a large effect.