Understanding the Social Security benefit boost
Millions of Social Security recipients just received the highest boost to their benefits in 40 years, which is fueled by record high inflation and is meant to help cover the higher cost of food, fuel and other goods and services. (October 13)
AP
One of the few upsides of soaring inflation could soon fade.
Older Americans should expect a sharply lower cost-of-living adjustment (COLA) in their Social Security benefits next year if inflation continues to cool, according to a new estimate by The Senior Citizens League, a nonpartisan advocacy group.
The roughly 70 million people – retirees, disabled people and others – who rely on Social Security could receive a 3.1% COLA in 2024, the group estimates, based on April’s 4.9% consumer inflation rate announced by the government Wednesday. That’s sharply lower than the four-decade high of 8.7% COLA in 2023.
For the average retiree who got a monthly check of $1,827 this year, the bump would mean an additional $56.64 a month in 2024, boosting the typical payment to $1,883.64.
“Without an accurate cost of living adjustment (COLA) that keeps pace with rising costs, beneficiaries lose purchasing power, especially over the course of a retirement that could last 25 to 30 years,” said Mary Johnson, the league’s policy analyst for Social Security and Medicare. This can lead to hardships like lost savings, growing debt and declining health, she added.
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What is the current COLA rate?
The Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers, or CPI-W, from July through September. The CPI-W largely reflects the broad CPI that the Labor Department releases each month but differs slightly. Last month, while the CPI rose 4.9%, the CPI-W increased 4.6%.
The league uses the most recent inflation data to keep a running projection of what COLA might be next year.
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When is Social Security COLA announced?
The next COLA will be announced in October and be effective starting January 2024.
About 70 million Americans receive benefits from programs administered by the SSA, with retired workers and their dependents accounting for 76.9% of benefits paid in 2022.
Nearly nine out of ten people aged 65 and older received a Social Security benefit as of December 31. Among them, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
All of these people rely on COLA to ensure their purchasing power isn’t eroded by inflation.
Though that’s the aim, COLA has failed, Johnson claims. Seniors were the only group that saw its share of poverty increase between 2020 and 2021, the Census Bureau said.
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Between January 2000 and February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually, but the cost of goods and services purchased by typical retirees rose by 141.4%, averaging about 6.2% annually over the same period, the league estimates.
“For every $100 a retired household spent on groceries in 2000, that household can only buy about $64 worth today,” Johnson said.
Last year, Social Security benefits had lost 40% of buying power since 2000, the league estimates. That was the deepest loss in buying power since the league began tracking this data in 2010.
This year, it found that the loss of buying power slightly improved — by four percentage points — to 36%. “However, that is still one of the deepest losses recorded by this study, exceeded only by the loss in 2022,” Johnson said.
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Using a better, more accurate calculation for COLA that aligns with how seniors spend money would help, analysts say.
Bureau of Labor Statistics has been calculating and researching the Consumer Price Index for the Elderly, which if had been used over the last 30 years, would have resulted in nearly $14,000 more in retirement benefits, Johnson said.
The National Council of Aging (NCOA) advocates using The Elder Index, developed by the Gerontology Institute at the University of Massachusetts Boston. It measures the income older adults need to meet basic needs and is specific to household size, location, housing tenure, and health status. It would show how much more older Americans need it to cover daily expenses than the current average Social Security benefit.
In February, the average monthly benefit was $1,782, and seniors generally need about $1,000 more than that to cover their expenses, NCOA said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
