Social Security 2024 COLA increase higher than expected?

According to multiple reports, the social security COLA increase (Cost of Living Adjustment) could be higher than expected.

According to the The Senior Citizens League in September of 2023, the COLA, will likely be 3.2% for 2024. That comes out to $1790, on average.

“COLAs are intended to protect the buying power of older consumers,” says Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League “But because Social Security benefits are modest at best, the dollar amount of the boost often falls short of the actual price hikes during the year.”

Johnson says inflation is digging into budgets and therefore needs to be increased.

“Prices remain elevated for housing, medical and food costs. Those three categories alone can account for 80% of most retirees’ budget,” she added.

How is COLA calculated?

The COLA (Cost of Living Adjustment) for Social Security benefits is calculated by the Social Security Administration (SSA) in the United States. The purpose of COLA is to adjust Social Security and Supplemental Security Income (SSI) benefits to account for the impact of inflation on the cost of living. Here’s how the COLA is calculated:

1. Data Collection: The process begins with the collection of price data on various goods and services purchased by urban wage earners and clerical workers. This collection is conducted by the Bureau of Labor Statistics (BLS), a federal agency responsible for tracking economic data, including inflation.
2. Consumer Price Index (CPI): The collected price data is used to calculate the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which serves as the basis for the COLA calculation.
3. Reference Periods: The COLA is based on the percentage change in the average CPI-W for the third quarter (July, August, September) of the current year compared to the average CPI-W for the third quarter of the previous year. This comparison reflects the change in the cost of living over the year.
4. COLA Calculation: The SSA uses the CPI-W data to calculate the COLA by determining the percentage increase or decrease in the index from one year to the next.COLA = [(CPI-W for the current year – CPI-W for the previous year) / CPI-W for the previous year] × 100
5. Announcement: The SSA typically announces the COLA for the next calendar year in October. This announcement is based on the CPI-W data and is used to adjust Social Security and SSI benefits for the upcoming year.
6. Benefit Adjustment: The COLA percentage is applied to Social Security and SSI benefits starting in January of the following year. Beneficiaries receive higher monthly payments to account for the increased cost of living.

It’s important to note that if there is no increase in the CPI-W, Social Security benefits remain the same; there is no COLA adjustment. Additionally, the exact COLA percentage can vary from year to year based on inflation data.

What is the highest and lowest Cost of Living Adjustment Ever (COLA)?

please note that COLA percentages can change annually, and it’s important to refer to the most recent data or consult the Social Security Administration (SSA) for up-to-date information.

Highest COLA: The highest COLA on record was for the year 1980. Social Security beneficiaries received a COLA of 14.3% in that year. This significant increase was primarily a response to high inflation during the late 1970s.

Lowest COLA: The lowest COLA percentage in recent history occurred several times when there was no COLA adjustment at all. COLAs are only applied when there is a measurable increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) over the reference period. Therefore, in years with very low or no inflation, there may be no COLA adjustment. For example, there was no COLA for Social Security benefits in 2010, 2011, and 2016 due to low or negative inflation during those years.

Keep in mind that economic conditions and inflation rates can vary from year to year, leading to fluctuations in the COLA percentages. The SSA typically announces the upcoming year’s COLA in October, based on inflation data from the third quarter of the current year compared to the previous year. If you want to find the most recent COLA percentages or specific information about a particular year, I recommend visiting the official Social Security Administration website or consulting their official publications.

The COLA calculation is designed to help ensure that Social Security and SSI beneficiaries do not lose purchasing power over time due to rising prices. It is an important aspect of these programs, as it helps protect the financial well-being of retirees and individuals receiving disability or supplemental income from the government.

A Social Security COLA (Cost of Living Adjustment) estimate is a calculation that predicts the potential increase in Social Security benefits for the upcoming year based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is used as a measure of inflation to determine adjustments to Social Security payments.

Here’s how the process generally works:

1. Basis for COLA: Social Security benefits are adjusted annually to account for the rising cost of living, ensuring that retirees and beneficiaries do not lose purchasing power over time due to inflation. The COLA is based on changes in the CPI-W, which reflects the price changes of a “market basket” of goods and services typically purchased by urban wage earners and clerical workers.
2. COLA Calculation: The Social Security Administration (SSA) calculates the COLA by comparing the average CPI-W from the third quarter (July, August, September) of the current year to the average CPI-W from the third quarter of the previous year. The percentage increase, if any, is applied to Social Security benefits for the following year.
3. COLA Announcement: The SSA typically announces the COLA for the next calendar year in October. The exact percentage increase is based on the CPI-W data for the reference period.
4. Benefit Adjustment: Once the COLA is determined, it is applied to Social Security benefits starting in January of the following year. Beneficiaries receive higher monthly payments to account for the increased cost of living.

A Social Security COLA estimate, often provided by financial planning tools or the SSA’s online calculators, allows individuals to anticipate how much their Social Security benefits might increase in the coming year. This estimate can be valuable for retirement planning and budgeting purposes, as it provides an early indication of the potential adjustment to one’s income from Social Security.

It’s important to note that the actual COLA percentage can vary from year to year based on inflation data, and it may not necessarily result in a significant increase in benefits. Additionally, the precise CPI-W data used for the calculation may differ slightly from one source to another, which can lead to minor variations in COLA estimates.