Why You Should Not Count on Another Supersized COLA Next Year
Retirees received a huge Social Security cost-of-living adjustment (COLA) this year, but experts caution do not expect a repeat for 2024. According to The Motley Fool, analysts are anticipating a possible 3.1 percent COLA next year. That’s terrible news for seniors struggling financially because of high inflation, especially with the high cost of critical items such as groceries, housing, utilities, and healthcare.
To help offset inflation, Social Security beneficiaries got an 8.7 percent COLA in 2023. It was the largest increase for retired workers since 1982 and the fourth biggest benefits boost in history. Even so, inflation is still outpacing benefits.
Recalculating COLA
That’s understandable when you look at how the COLA is calculated. Currently, COLA calculations are based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), but many financial experts and senior advocates (including The Seniors Trust) believe the CPI-W underestimates the effect of inflation on the senior population and believes the Consumer Price Index for the Elderly (CPI-E) should be used instead.
That’s at the core of the Social Security Expansion Act introduced by Senator Bernie Sanders (I-VT) and nine Democratic cosponsors. This landmark piece of legislation proposes replacing the CPI-W with the CPI-E in December 2025. According to an analysis by the Office of the Chief Actuary, as reported by The Motley Fool, “the growth in Social Security benefits would be about 1.1 percentage points higher today if the CPI-E had been used to calculate COLAs over the past decade.”
Until that bill is enacted, we will continue to use the current COLA calculator, of which we are now entering a critical period. That’s because the COLA is calculated using the CPI-W from the third quarter of the current year divided by the CPI-W from the third quarter of the prior year. The percentage of increase (if any) becomes the COLA for the following year. Quarter 3 began July 1st. So, what happens over the next few months will determine how much of a benefits increase seniors will see next year.
