Fresh Inflation Data Suggests 2024 Social Security COLA Could Fall Well Below 3%
What You Need to Know
If inflation continues to fall, the COLA for 2024 will likely be lower than 3%, a far cry from the near-record 8.7% increase in 2023.
The past two years of rapid inflation has had some far-reaching financial consequences for low- and middle-income retirees.
The number of people reporting they have depleted a retirement account over the past 12 months has increased to 26%.
The rate of inflation, as measured by the consumer price index that is used to calculate the annual Social Security cost-of-living adjustment (COLA), fell to 4.5% in March.
If inflation continues to fall at the current rate, it appears that the COLA for 2024 will likely be lower than 3%, says Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
Johnson emphasizes that the actual outlook for the 2024 COLA remains uncertain, given the fact that inflation rates are unpredictable and the results for the third quarter will be crucial to the end figure.
As such, The Senior Citizens League won’t start any “official” estimates of the COLA for 2024 until May. However, based on the newly released March inflation data and the preceding 12 months of cooling price increases, the COLA “looks like it will be below 3% and could fall into the 2% or even lower range.”
This is similar to the projection Johnson shared with ThinkAdvisor back in mid-March, but she says another month of significant cooling in the CPI has given her even more confidence that a modest COLA is in store next year.
Recent Record COLA
According to Johnson, even with cooler inflation seen last month, higher prices continue to hurt the pocketbooks of U.S. retirees.
The good news is that the near-record 8.7% COLA increase in 2023 has exceeded the actual rate of inflation experienced by Americans in every month so far this year — by an average of 2.6%.
“That’s about $44.90 per month [in excess income] based on an average Social Security benefit of $1,694,” Johnson points out. “But, that so-called ‘cushion’ would be completely consumed by the $164.90 average per month Medicare Part B premium, which is automatically deducted from Social Security benefits.”
Ultimately, according to Johnson’s calculations, average benefits in 2023 have only recovered about $179.40 in total since the start of the year — and that’s before the deduction of the Part B premium.
Cost Concerns and Account Depletions
Johnsons says the financial impact of the past two years of rapid inflation has had some far-reaching consequences for low- and middle-income retirees.
