Talk about what a difference a year makes. This time last year, estimates showed that the 2023 cost-of-living-adjustment (COLA) for Social Security could exceed 10%. But after more than a year’s worth of interest rate increases and cooling inflation, the 2024 estimates have been cut dramatically compared to last year.
Data released July 12 by the Bureau of Labor Statistics shows that the Consumer Price Index (CPI)[1] came in at 3% for the 12 months ending in June; this was the smallest 12-month increase since the period ending in March 2021. The CPI rose 0.2% in June on a seasonally adjusted basis, after increasing 0.1% in May.
Consequently, estimates by The Senior Citizens League (TSCL) based on the new CPI-W data (the Consumer Price Index for Urban Wage Earners and Clerical Workers) through June show that the COLA for 2024 could be 3%, which is slightly higher than the 2.7% the organization estimated a month ago based on data through the end of May.
Note that the final Social Security COLA won’t be known for several months, but the estimates typically are a precursor of what can be expected for retirement plan contribution and benefit limits.
The CPI-W, which is the index that’s used to determine the COLA, was up only 2.3% year over year. “However, the average inflation rate over the past twelve months rose slightly and thus affected our COLA estimate, rising from 2.7% last month to 3% based on the June data,” writes Mary Johnson, Social Security and Medicare policy analyst for TSCL who conducts the estimates.
In addition, there are still three more months of data before the COLA is announced in October, and this estimate could change. The COLA is determined based on inflation in the third quarter—July, August, and September—as measured by the CPI-W. Inflation for those three months is added together and averaged, then compared with the third quarter average from one 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. The 2023 Social Security COLA was 8.7%, which was the highest in four decades.
A COLA of 3% would raise an average monthly benefit of $1,787 by a little more than $53.60, TSCL notes. Social Security recipients, however, won’t learn the bottom line until the Medicare Part B premiums are announced. Part B premiums are automatically deducted from most beneficiaries’ Social Security benefit. In many years, the Part B premium increase can take most if not all of the COLA, explains Johnson.
In its annual report released in March of this year, the Medicare Trustees forecast monthly Part B premiums to increase from $164.90 in 2023 to $174.80 in 2024. Still, that’s an estimate and doesn’t include any significant new costs that come up after the estimate is released, TSCL emphasizes.
As of today’s forecast, the affordability outlook for a $15 per month Part B increase looks challenging for some but doable for most Medicare beneficiaries. “If inflation continues to slow and the COLA for 2024 is lower, the risk that the Part B premium increase may exceed the amount of the COLA increases, especially for those with the lowest Social Security benefits,” Johnson further observes.
TSCL had previously noted that inflation was so severe in 2021 and 2022 that the average Social Security benefit fell behind by $1,054, leaving 53% of retirees doubting they would recover because household costs rose more than the dollar amount of their COLAs.
[1] Based on the Consumer Price Index for All Urban Consumers (CPI-U).
