What's the most important date on the calendar this year for Social Security beneficiaries? Probably Oct. 12. That's when retirees and others receiving Social Security benefits should find out how much their benefits will go up for 2024.
There are only seven weeks left until next year's Social Security cost-of-living adjustment (COLA) is likely to be announced. Here's how big a raise you can expect.
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Kiss your 8.7% increase goodbye
First of all, you can kiss that hefty 8.7% increase that all Social Security beneficiaries received in 2023 goodbye. It's a near certainty that next year's COLA won't be nearly as high.
Of course, the increase that retirees enjoyed this year is definitely an outlier. It was the highest Social Security adjustment in four decades. And the increase ranked as the fourth-greatest since automatic annual COLAs were implemented in 1975.
The exceptionally high increase for 2023 reflected the exceptionally high inflation levels experienced last year. Inflation surged primarily because of rising energy prices, supply chain issues resulting from the COVID-19 pandemic, and price changes in auto-related industries, according to the National Bureau of Economic Research.
However, inflation has moderated somewhat since last year. This means that the Social Security COLA for 2024 will be lower.
How things look today
The big question, of course, is: Just how much lower will next year's Social Security increase be? The correct answer is that it's too soon to know for sure.
The Social Security Administration (SSA) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate annual benefit adjustments. But it only uses the CPI-W numbers from the third quarter of the current year compared to the same period in the previous year.
As of right now, we only know the CPI-W for one month in Q3 2023 -- July. If we only used this one month to calculate next year's COLA, you'd be in store for a raise of a little under 2.3%.
What if the CPI-W remains constant in August and September? The increase in Social Security benefits in 2024 will be close to 2.5%. That would make next year's COLA slightly higher than the average adjustment over the last 10 years.
Arguably the most likely trajectory for the CPI-W, though, is for it to continue rising moderately. If we assume that the inflation metric grows over the remaining two months in Q3 at the same rate it has risen over the last three months, your 2024 COLA will be nearly 3%.
Don't bank on that 3% just yet
There are still several wild cards that could change what next year's Social Security benefits increase will be. Don't bank on receiving 3% just yet.
It's possible that an event could occur that causes fuel prices to skyrocket. If this scenario unfolds, the prices of many products would also jump because of the higher costs of transportation. As a result, the CPI-W for Q3 2023 would likely rise more dramatically than any of the current projections. And your COLA for next year could also be higher than expected.
On the other hand, the Federal Reserve's interest rate hikes are still working their way through the economy. Inflation could potentially decline at a steeper rate in August and September, causing next year's Social Security increase to be lower than current projections.
The best bet for now, though, is that retirees will receive an increase somewhere in the ballpark of 2.5% to 3%. You should only have to wait seven more weeks to know the exact amount.
