Why a 2024 Social Security COLA Under 4% Would Be Good News: Munnell
This would be much lower than previous years but reflects the fact that inflation is finally moderating.
Though it is still too early to calculate the 2024 Social Security benefit cost-of-living adjustment — given that it is based in part on the average increase of the consumer price index for the months of July, August and September — the growing amount of 2023 inflation data now available to prognosticators makes a reasonably reliable projection possible.
According to a new analysis published by Alicia Munnell, director of the Center for Retirement Research at Boston College, retirees should expect a 2024 COLA between 3.0% and 3.8%. For now, Munnell says, she is going with a middle-case 3.4% projection.
This figure puts her roughly in line with the projections made by various other researchers, including Mary Johnson, the Senior Citizens League’s Social Security and Medicare policy analyst, who currently projects the 2024 COLA at 3%. This figure is up from Johnson’s earlier projection of 2.7% from June but still well below the near-record 8.7% COLA for 2023.
“My best guess is the 2024 COLA will be roughly in line with 2024 inflation,” Munnell writes. “In contrast, the COLA over the last two years has been out of sync with actual inflation — too low a COLA in 2021 and too high a COLA in 2022.”
According to Munnell, this pattern is the inevitable result of a backward-looking calculation, but it makes “perfect sense” to base the COLA on actual data rather than a forecast, which could involve constant corrections for over- or under-predicting.
“Most importantly, over the whole inflation cycle, retirees have received the appropriate increase,” Munnell says.
COLA Calculation Basics
As Munnell observes, because the COLA first affects benefits paid after Jan. 1, Social Security needs to have figures available before the end of 2023.
“As a result, the adjustment for 2024 will be based on the increase in the CPI-W for the third quarter of 2023 over the third quarter of 2022,” she explains. “We know the 2022 number, but we need data for July, August and September to calculate the third-quarter average for 2023. All we have so far is the June number.”
Thus, Munnell says, the only option for those who want to start planning ahead is to make some assumptions. She argues the most reasonable option at this juncture is to project that the CPI-W will increase by an average of 0.2 percentage points, 0.4 percentage points and 0.6 percentage points, respectively, in July, August and September.
“This exercise suggests a 2024 COLA between 3.0% and 3.8%,” Munnell explains. “For now, I’m going with 3.4%.”
Still Good News for Retirees
As Munnell observes, this projection is much lower than previous years, but that’s not really unfavorable as it reflects the fact that inflation is moderating, and because the recent COLAs have protected retirees against some of the worst ravages of inflation.
“This automatic indexing of benefits to keep up with rising prices — always a wonderful feature of our Social Security program — has been particularly valuable over the last few years as we have experienced high rates of inflation,” she concludes.
Pictured: Alicia Munnell