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Illustration of Social Security card saying COLA: Since 1975

Retirement Planning > Social Security

Social Security COLA Estimated at 2.7% for 2024 as Inflation Cools

By John Manganaro

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What You Need to Know

  • The estimate reflects a 0.1% rise in prices in May and a 4% increase over the prior 12 months, according to The Senior Citizens League.
  • Social Security benefits have lost significant purchasing power since 2000, according to the advocacy group.
  • The actual 2024 COLA will be based on third-quarter inflation data and will be announced in October.

The latest consumer price index data, released Tuesday, shows that prices have risen by 4.0% over the past 12 months while increasing 0.1% in May. This is down from a 0.4% increase during April, showing a modest decrease in inflation.

Based on this data, The Senior Citizens League estimates the Social Security cost-of-living adjustment, or COLA, for 2024 will be 2.7%. This is far below the near-record 8.7% COLA for 2023.

Mary Johnson, the league’s Social Security and Medicare policy analyst, bases monthly COLA estimates on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W.

Since January of this year, Johnson tells ThinkAdvisor, the actual inflation rate, as measured by the CPI-W, was lower than the amount older Americans received in their 8.7% COLAs. That difference theoretically should provide a modest temporary improvement in buying power for a retiree, with average monthly benefits now standing just shy of $1,700.

Inflation, however, was so severe in 2021 and 2022 that the average Social Security benefit fell behind by more than $1,000, leaving 53% of retirees doubting they will recover from the shortfall, based on polling data published by the league.

COLA Insights: May 2023 Inflation Data

The index for shelter was the largest contributor to the monthly increase in prices, according to the Bureau of Labor Statistics, followed by an increase in the index for used cars and trucks. The food index increased 0.2% in May after being unchanged in the previous two months.

The index for the food at home category rose 0.1% over the month, while the index for food away from home rose 0.5%. The energy index, in contrast, declined 3.6% in May as the major energy component indexes fell.

The index for all items less food and energy rose 0.4% in May, as it did in April and March.

Indexes that increased in May include shelter, used cars and trucks, motor vehicle insurance, apparel and personal care. The index for household furnishings and operations and the index for airline fares were among those that decreased over the month.

The all items index increased 4.0% for the 12 months ending May, marking the smallest 12-month increase since the period ending March 2021. The all items less food and energy index rose 5.3% over the last 12 months.

The energy index decreased 11.7% for the 12 months ending May, and the food index increased 6.7% over the last year.

COLA Impact on Retirees

According to an ongoing survey conducted by The Senior Citizens League, older consumers are reporting little improvement in their household buying power, even with the recent sizable COLAs and a slight moderation in inflation.

Sixty-two percent of survey participants report food costs as their fastest-growing expense. The biggest concern, according to 22% of survey respondents, was housing costs.

According to the league’s analysis, between January 2000 and February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually.

The cost of goods and services purchased by typical retirees rose by 141.4% during that same period, averaging about 6.2% annually. In other words, for every $100 a retired household spent on groceries in 2000, that household can only buy about $64 worth today.

(Image: David Palmer/ALM)

John Manganaro

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