At the start of 2023, seniors on Social Security saw their monthly benefits rise substantially thanks to the 8.7% cost-of-living adjustment (COLA) they received. But next year's raise is shaping up to be a lot smaller. Initial estimates, in fact, are coming in at around 3%.
Clearly, that's not the news seniors want to hear. But it's also easy to make the argument that Social Security COLAs don't really matter since they're simply a reflection of inflation.
A number not worth getting hung up over
At this point, a lot of Social Security beneficiaries want to know what sort of COLA they'll be receiving at the start of 2024. But we won't have an answer for a good number of weeks.
Image source: Getty Images.
The reason? Social Security COLAs are calculated based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a subset of the more widely known Consumer Price Index. In the absence of monthly data from August and September, an official COLA can't be calculated.
That's why the Social Security Administration (SSA) commonly announces COLAs during the first half of October. It's not to keep seniors in suspense -- it's because the SSA doesn't have the data until then.
Meanwhile, inflation has been cooling off nicely since the start of 2023. So even without August and September's data, it's easy enough to draw the conclusion that the COLA seniors on Social Security get in 2024 will pale in comparison to what they received in 2023. But that also shouldn't really be a problem.
See, the whole purpose of COLAs is to help seniors maintain their buying power by compensating for inflation. When COLAs come in lower, that's simply a reflection of the fact that inflation isn't as intense. When COLAs are more generous, it's because inflation has become problematic.
And that's why it really doesn't pay for seniors on Social Security to focus much on COLAs. Yes, a larger boost in your monthly benefit check might seem helpful. But larger COLAs follow rising prices at the pump and in the supermarket. So all told, everything more or less evens out.
Seniors who want to see their financial situations improve should instead focus more on their larger living expenses. Those struggling, for example, may want to consider downsizing their homes or relocating to a less expensive part of the country. Those moves can have more of an impact than any Social Security COLA.
Seniors who want to boost their finances can also look at working in some capacity. The thriving gig economy means that working in retirement no longer necessarily has to involve reporting to a preset location on a specific schedule. Retirees who want to work part-time can enjoy the same flexibility as their younger counterparts.
It's easy to see why so many Social Security beneficiaries like to focus on COLAs. But in the end, fixating on COLAs is really a waste of time. COLAs are designed to rise and fall with inflation -- it's that simple. And while the idea of a lower COLA in 2024 might seem disappointing, the flip side is that inflation is becoming less of a problem, which is apt to spell relief for seniors in other ways.
