One of the most important times of the year for Social Security recipients is underway. We're nearly through the first month of the third quarter.
Why is this period so important? The Social Security Administration (SSA) compares inflation numbers in the third quarter against figures from the same quarter in the prior year to calculate the annual cost-of-living adjustment (COLA).
There could be some good news for retirees. Your next Social Security COLA might be bigger than expected. But don't get too excited.
Image source: Getty Images.
Moving higher
In June, The Senior Citizens League (TSCL) projected that the 2024 Social Security COLA would be 2.7%. However, as additional inflation data comes out every month, the nonprofit organization revises its estimates.
With new numbers to evaluate in July, TSCL has increased its forecast of what the annual Social Security adjustment will be. It now predicts a COLA of 3%.
The average monthly Social Security retirement benefit currently stands at $1,789, according to the SSA. A 3% increase would translate to seniors receiving nearly $54 more per month.
Those figures, though, include benefits paid to spouses and children of retirees. The average monthly benefit for retired workers is a little over $1,837. TSCL's estimated 3% COLA would give a $55 average increase to retired workers.
The rest of the story
This projected adjustment falls far short of the 8.7% increase received by Social Security beneficiaries in 2023. It would also be the lowest COLA since 2020's adjustment of 1.3%.
The actual amount received each month from Social Security could depend on another factor as well. Most seniors have their Medicare Part B premiums automatically deducted from their monthly Social Security benefits.
Earlier this year, the Medicare Trustees estimated that Part B premiums for 2024 will increase by nearly $10 per month. However, that figure doesn't reflect the potential impact of Medicare's coverage of the new Alzheimer's disease drug Leqembi.
TSCL anticipates that the additional costs related to Leqembi could push Medicare Part B premiums up by around $5 per month. It also noted that other healthcare costs could cause premiums to rise even more.
Not enough fizz
Keep in mind that the actual COLA could differ from TSCL's projection. The SSA won't announce the COLA for 2024 until October. The agency must have all CPI-W data for the third quarter before crunching the numbers.
It's possible that your COLA for next year could be lower than TSCL's 3% estimate. The Federal Reserve's interest rate hikes, intended to bring inflation down, are still working their way through the economy.
There's also another persistent issue. The inflation metric used by the SSA to calculate Social Security adjustments -- the Consumer Price Index for Urban Wage Earners (CPI-W) -- doesn't necessarily capture all of the price increases felt by seniors. In particular, TSCL argues that the CPI-W doesn't fully account for higher prices of food, housing, prescription drugs, and dental services incurred by seniors.
Whatever the actual adjustment is for 2024, it might not be enough to fully offset all of the additional costs retirees have. For many, next year's COLA -- whether it's more or less than 3% -- simply won't have enough fizz.
