Cost of Living Adjustments 2024 – What You Need to Know
Social Security beneficiaries can expect a pay increase next year.
In 1973, Congress introduced cost-of-living adjustments, or COLAs, into law. With COLAs, those receiving Social Security benefits could see their retirement income adjusted each year to match the cost of living. These adjustments came into effect in 1975 and have helped those receiving retirement benefits maintain their buying power in retirement every year since.
Last year, Social Security beneficiaries received one of the biggest COLAs of all time when benefits increased by 8.7%. This was thanks to the sharp rise in the inflation rate (which potentially affected your retirement), which also caused a jump in the cost of living.
Recently, inflation has come down to its lowest rate in several years. Because of this, current COLA estimates are low—currently at 3%.
But what does that mean for those who plan to receive Social Security in 2024?
How do they calculate COLA?
Social Security COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is published monthly by the Bureau of Labor Statistics. The CPI-W helps us understand the way changes in prices might affect the workers listed: those who earn wages or perform clerical work. To find the COLA, experts compare the CPI-W of the current year’s third quarter with that of the previous year’s third quarter. If they see an increase, they announce a COLA for the following year.
6 things you need to know about COLA 2024
As we near the third quarter of the year, it’s natural for many to speculate what the COLA for 2024 might be. While the news speculates about what that could mean for those receiving Social Security next year, there are a few things you should know about the potential increase.
1. The increase happens automatically
There is absolutely nothing current Social Security beneficiaries must do to receive their COLA increase. Once the Social Security Administration puts it into place, it’s official: your benefits increase that December. Because of the way benefits get paid, you should see the increase reflected in your checks the following January.
2. Last year’s COLA was the biggest in 40 years
This might be a shocking statistic for the Boomers, but the most recent COLA increase of 8.7% was the biggest since 1981. That year, benefits increased by 11.2% to meet the cost of living. In fact, the 8.7% increase was one of the most significant increases in history, being the 4th-biggest increase since the first COLA in 1975.
3. Last year’s adjustment outpaced the cost of living
In 2023, Social Security benefits increased by 8.7%. That amount is higher than the actual cost of living increase reported by the CPI-W every month this year. June’s CPI-W shows only a 2.3% increase over June 2022.
This means some beneficiaries may have received more than they needed this year. Keeping those extra funds in savings could be helpful if next year’s low increase doesn’t meet beneficiaries’ needs. And if the 3% increase proves not to be enough, make sure to check out our money-saving tips for retirees.
Remember that this is all an effort to predict the future; they sometimes make mistakes. For instance, 2022’s COLA increase was misjudged, and Social Security benefits fell short of the actual increase in the cost of living.
4. The total increase isn’t set yet
Because the increase is based on the CPI-W for the entire third quarter, it’s not yet set in stone. For that, we have to wait for the quarter to end on September 30th. The final decision on next year’s COLA should be announced the following month. The current estimate of 3% could change between now and October. In fact, this amount already reflects recent changes: the Senior Citizens League had previously announced an estimate of 2.7%, only increasing it to 3% after June’s CPI-W.
5. Your increase is based on your current income
It’s important to remember that the COLA increases Social Security income by a percentage, not a dollar amount. This means that Social Security benefits increase differently for every recipient. For the average Social Security benefit recipient, a 3% COLA would be an increase of roughly $53.60 per month.
6. A new bill could offer expanded benefits
Senators Bernie Sanders and Elizabeth Warren, along with some of their colleagues, introduced a bill to Congress last year that would expand Social Security benefits even further. It didn’t get passed, so they re-introduced it earlier this year. If it wins approval this time, the bill will give Social Security recipients an additional $200 a month, or $2,400 a year—a welcome addition to those seniors who’ve seen annual cost-of-living increases fall short.
As written, the bill would also help Social Security remain solvent for at least the next 75 years, helping to guarantee retirement benefits for nearly a century.
Another bill, introduced earlier this year by Representative John Larson, would permanently increase Social Security benefits by 2% for all recipients and adjust COLAs to more accurately reflect the cost of living increases faced by seniors.
As of today, neither of these laws has passed yet. However, similar bills are introduced almost every year. So, if these don’t pass, Congress will likely try again next year.