Based on the latest consumer price data released Aug. 10, The Senior Citizens League (TSCL) estimates that the Social Security cost of living adjustment (COLA) for 2024 is looking increasingly like it may be around 3%.
Overall, the rate of inflation in July is significantly lower than a year ago, yet most older Americans are reporting that persistently high prices still affect their household budgets, according to results from a new survey by TSCL.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—the index that’s used to determine the COLA—was up 2.6% year over year. However, the average monthly inflation rate, especially since January of this year rose slightly—keeping the COLA estimate at 3% based on July price data, the organization notes. In comparison, the current year’s COLA is 8.7%.
Why is the July CPI data so important? Because the COLA is calculated based on inflation during the third quarter—July, August and September—as measured by the CPI-W, TSCL further explains. Inflation for those three months is added together and averaged, then compared with the third-quarter average from a year ago. The percentage difference between the two is the amount of the COLA, which would be payable for the check received in January 2024.
For a more in-depth explanation of how it works, the 2023 COLA computation can be found on the Social Security website.
Consequently, a COLA of 3% would raise an average monthly benefit of $1,789 by $53.70, TSCL estimates.
Note also that the COLA estimates typically are a precursor of what can be expected for retirement plan contribution and benefit limits.
High Prices Continue
Meanwhile in 2023, Social Security recipients received the highest COLA in more than 40 years, but nearly 8 in 10 (79%) retirees report that lingering high prices continue to significantly impact household budgets, the organization’s survey found.
Here are responses from TSCL’s most recent Retirement Survey launched mid-July 2023: “How would you characterize your monthly budget for essential items (such as housing, food, and prescription drugs) over the past 12 months?
|Higher than this time a year ago||79%|
|About the same as this time a year ago||9%|
|Lower than a year ago||7%|
Total 1,759 survey participants.
And persistent high prices apparently are not the only problem, TSCL further emphasizes. To that end, findings from its survey suggest that nearly one in four Social Security beneficiaries (23%) report they paid tax on a portion of their benefits for the first time this past tax season. The tax return for 2022 reflected a 5.9% COLA increase in Social Security benefits.
“We expect the number who pay tax on a portion of their Social Security benefits to jump even more as next year’s tax season reflects the 8.7% COLA increase in 2023,” observes Mary Johnson, Social Security and Medicare policy analyst at TSCL, who conducts the estimates.
TSCL notes that it will issue its final estimate of the 2024 COLA on Sept. 13, 2023. The COLA announcement is currently expected to be Oct. 12, 2023, barring any unforeseen delays, such as a government shutdown, notes Johnson.