Social Security recipients will soon learn their COLA increase for 2024. Here's what analysts predict.
Every October, the Social Security Administration announces its annual cost-of-living adjustment, a tweak to the monthly benefits of 71 million recipients that's meant to keep them abreast with inflation. The upcoming benefit hike is likely to fall far short of the current year's 8.7% increase, with experts warning that some seniors around the U.S. are at risk of losing ground.
The 2024 cost-of-living adjustment (COLA) for 2024 is likely to be 3.2%, according to the Senior Citizens League, an advocacy group for older Americans. That's based on recent inflation data, including today's August consumer price index report, which found that prices rose by an annual rate of 3.7% in August amid higher gas costs.
That means headline inflation continues to run hotter than the 3.2% annual COLA adjustment expected by the Senior Citizens League. Even with this year's 8.7% increase, which was the largest in four decades, many retirees say they're still falling behind, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
About 7 in 10 retirees said their monthly costs are about 10% higher than this time a year ago, she noted.
"COLAs are intended to protect the buying power of older consumers," Johnson told CBS MoneyWatch in an email. "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."
She added, "Prices remain elevated for housing, medical and food costs. Those three categories alone can account for 80% of most retirees' budget."
How does Social Security calculate the COLA?
The reason a COLA that could run lower than the current rate of inflation comes down to how the figure is calculated.
First, the Social Security Administration relies on an inflation index that's slightly different than the main CPI that the Federal Reserve and economists use to gauge pricing trends. The agency instead bases its COLA on what's known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, which some critics say doesn't accurately reflect the spending of older Americans.
In August, the CPI-W rose 3.4%, slightly lower than the 3.7% increase in the Consumer Price Index for All Urban Consumers, the primary inflation index relied on by economists.
Next, the agency bases its COLA on the percentage increase in the CPI-W in the third quarter — July, August and September — compared with the prior year. If there's no increase between the two figures, there's no COLA adjustment.
The average Social Security benefit
If Social Security increases the COLA by 3.2% next year, the average monthly retiree check would increase to $1,790, or $57.30 in additional benefits, the Senior Citizens League said.
But many retirees have monthly costs that exceed that average benefit, with the group finding that 52% of seniors say they spend more than $2,000 a month.
"Social Security benefits are modest, replacing roughly one-third of a middle earner's average wages," Johnson said, citing an analysis from Social Security's chief actuary.
Medicare premiums for 2024
Another key questions for Social Security recipients is whether Medicare premiums will eat into retirees' COLA in 2024. Typically, Medicare announces its premiums in November.
Medicare premiums are an issue because the Social Security Administration automatically deducts Part B costs from monthly Social Security benefits before they're sent to retirees. In March, Medicare Trustees forecast Part B monthly premiums would increase 6% to $174.80.
However, that forecast was issued before Medicare said it would cover the new Alzheimer's drug Leqembi, which could cost $26,000 annually without insurance and which could increase the program's costs.