Seniors on Social Security saw their benefits rise by 8.7% at the start of 2023. That raise was the largest cost-of-living adjustment, or COLA, to arrive in decades. And it's hopefully helped some seniors shore up their finances and gain buying power over the past five months and change.
But Social Security recipients should not expect their 2024 COLA to look anything like their 2023 raise. Based on recent inflation data, the nonpartisan Senior Citizens League is projecting that 2024's Social Security COLA will amount to 3.1%.
Of course, that number is by no means set in stone. Social Security COLAs are calculated based on third quarter inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Since we haven't even gotten to the third quarter of the year yet, it's way too soon to say what readings we'll get out of the CPI-W later on in 2023.
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But still, it's clear that inflation has been gradually cooling since peaking in mid-2022. And that means that no matter what 2024's Social Security COLA looks like, it's apt to pale in comparison to this year's 8.7% raise. That's not a totally bad thing, though.
At least there's some relief from inflation
It's natural for seniors on Social Security to want a giant raise in 2024. But a smaller raise isn't all that bad, because it's an indication that inflation isn't as rampant. And with inflation cooling, seniors may have a much easier time keeping up with their basic expenses in 2024, including utility bills, groceries, and transportation.
That said, given that many seniors are looking at a much larger monthly Social Security paycheck this year, it's a good time to start socking extra money away in case next year's COLA truly disappoints. Many seniors, unfortunately, don't have savings to fall back on to supplement their Social Security income. So it's especially important that people in that boat take advantage of their 2023 COLA by reserving some of that money for a rainy day.
Another good reason for Social Security recipients to bank some extra cash this year? We don't know what next year's Medicare premium hikes will look like. Those can easily erode Social Security COLAs, so saving more now could come in handy if the cost of Medicare rises significantly in 2024.
We'll need to wait until October
The Social Security Administration commonly announces upcoming COLAs in October, so we won't know what next year's raise looks like for quite some time. And between now and then, we're apt to see different projections come through. They may be larger or smaller than 3.1%, depending on what upcoming CPI-W readings look like.
But either way, it's important to be realistic and recognize that 2024's COLA is not going to be close to 8.7%. It may not even amount to half.
That may not be the news seniors on Social Security want to hear. But on the plus side, a smaller COLA should mean that retirees are finally getting some relief from inflation.
