Don’t Get Caught Off-Guard About Next Year’s COLA
Social Security recipients received a big benefits boost this year thanks to an 8.7% cost-of-living adjustment (COLA). It was the largest increase in almost 40 years, due to skyrocketing inflation. As The Motley Fool points out, inflation has been slowing this year, so seniors have been able to gain some buying power. That’s important because many retirees were feeling the financial pinch last year when prices shot up, especially for essentials like groceries. However, the article cautions next year could be vastly different.
Consumer Spending
Social Security COLAs are calculated based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Last year, that index registered a big enough increase in inflation to bump Social Security benefits by 8.7% for 2023.
For the first quarter of this year, the CPI-W was only up 4.5% on an annual basis. If the index remains low like that, then retirees could be very disappointed about their 2024 COLA. Of course, that won’t be known until October, after the third quarter data is revealed. But experts say savvy seniors might want to plan for a much smaller COLA next year.
Better COLA Calculator
The Seniors Trust believes seniors would be better off if we used the Consumer Price Index for the Elderly, or the CPI-E, instead of the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W, to calculate COLA. The CPI-E index specifically tracks the spending of households with people aged 62 and older. It places greater value on rising costs of expenses unique to seniors such as housing, healthcare, and medicine. This would provide a much fairer cost-of-living adjustment for retirees.
The change would be made if Congress enacts the Social Security Expansion Act. Along with setting a fairer COLA, this landmark piece of legislation will also increase benefits by $200 per month and secure Social Security solvency for another 75 years.
