One of the few upsides of soaring inflation could soon fade.
Older Americans should expect a sharply lower cost-of-living adjustment (COLA) in their Social Security benefits next year if inflation continues to cool, according to a new estimate by The Senior Citizens League, a nonpartisan advocacy group.
The roughly 70 million people – retirees, disabled people and others – who rely on Social Security could receive a 3.1% COLA in 2024, the group estimates, based onApril's 4.9% consumer inflation rate announced by the government Wednesday. That’s sharply lower than the four-decade high of 8.7% COLA in 2023.
For the average retiree who got a monthly check of $1,827 this year, the bump would mean an additional $56.64 a month in 2024, boosting the typical payment to $1,883.64.
“Without an accurate cost of living adjustment (COLA) that keeps pace with rising costs, beneficiaries lose purchasing power, especially over the course of a retirement that could last 25 to 30 years,” said Mary Johnson, the league's policy analyst for Social Security and Medicare.This can lead to hardships like lost savings, growing debt and declining health, she added.
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What is the current COLA rate?
The Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers, or CPI-W, from July through September. The CPI-W largely reflects the broad CPI that the Labor Department releases each month but differs slightly. Last month, while the CPI rose 4.9%, the CPI-W increased 4.6%.
The league uses the most recent inflation data to keep a running projection of what COLA might be next year.
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When isSocial Security COLA announced?
The next COLA will be announced in October and be effective startingJanuary 2024.
Who qualifies for COLA increase?
About 70 million Americans receive benefits from programs administered by the SSA, withretired workers and their dependents accounting for 76.9% of benefits paid in 2022.
Nearly 9 out of 10 people aged 65 and older received a Social Security benefit as of Dec. 31. Among them, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
All of these people rely on COLA toensure their purchasing power isn't eroded by inflation.
Though that’s the aim, COLA has failed, Johnson claims. Seniors were the only group that sawits share of poverty increase between 2020 and 2021, the Census Bureau said.
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Has COLA failed recipients?
Between January 2000 and February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually, but the cost of goods and services purchased by typical retirees rose by 141.4%, averaging about 6.2% annually over the same period, the league estimates.
“For every $100 a retired household spent on groceries in 2000, that household can only buy about $64 worth today,” Johnson said.
Last year, Social Security benefits had lost 40% of buying power since 2000, the league estimates. That was the deepest loss in buying power since the league began tracking this data in 2010.
This year, it found that the loss of buying power slightly improved – by 4 percentage points – to 36%. “However, that is still one of the deepest losses recorded by this study, exceeded only by the loss in 2022,” Johnson said.
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Can COLA be improved so it fulfills its aim?
Using a better, more accurate calculation for COLA that aligns with how seniors spend money would help, analysts say.
Bureau of Labor Statistics has been calculating and researching theconsumer price index for the elderly,which if had been used over the past 30 years, would have resulted in nearly $14,000 more in retirement benefits, Johnson said.
The National Council of Aging (NCOA) advocates using The Elder Index, developed by theGerontology Institute at the University of Massachusetts Boston. It measures the income older adults need to meet basic needs and is specific to household size, location, housing tenure, and health status. It would show how much more older Americans need it to cover daily expenses than the current average Social Security benefit.
In February, the average monthly benefit was $1,782, and seniors generally need about $1,000 more than that to cover their expenses, NCOA said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.comand subscribe to our freeDaily Money newsletterfor personal finance tips and business news every Monday through Friday morning.
As an expert in financial analysis and social security policy, I bring a wealth of knowledge to the discussion surrounding the article on the potential impact of inflation on Social Security benefits, particularly the Cost-of-Living Adjustment (COLA) for older Americans. My expertise is grounded in years of researching economic indicators, government policies, and their implications on retirees and the broader population.
Let's break down the key concepts used in the article:
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Cost-of-Living Adjustment (COLA):
- COLA is an annual adjustment made to Social Security and other federal benefits to account for the effects of inflation on the cost of living.
- The Social Security Administration determines COLA based on the average annual increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from July through September.
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Inflation and Its Impact on COLA:
- The article mentions that if inflation continues to cool, older Americans may experience a lower COLA in their Social Security benefits.
- Inflation is a key factor influencing the purchasing power of retirees. A lower COLA means that the increase in benefits may not keep up with the rising costs of goods and services.
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Estimates and Projections:
- The Senior Citizens League provides estimates based on the latest inflation data. They project a 3.1% COLA for 2024, a significant drop from the 8.7% COLA in 2023.
- These estimates are crucial for retirees and those relying on Social Security to plan their finances.
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Social Security Beneficiaries:
- Approximately 70 million Americans, including retirees, disabled individuals, and others, rely on Social Security benefits.
- The COLA is essential for maintaining the purchasing power of these beneficiaries, particularly those whose income depends largely on Social Security.
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Challenges and Consequences:
- The article highlights the potential hardships that may arise if the COLA does not accurately keep pace with rising costs, such as lost savings, growing debt, and declining health for retirees.
- It also notes that seniors have experienced an increase in poverty, indicating the limitations of the current COLA system.
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Historical Performance of COLA:
- Over the years, Social Security COLAs have failed to keep pace with the increasing costs of goods and services. The League estimates that between 2000 and 2023, benefits increased by 78%, while the cost of goods and services rose by 141.4%.
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Proposed Improvements to COLA:
- Analysts and advocacy groups propose using more accurate calculations for COLA that align with how seniors spend money.
- The Bureau of Labor Statistics has been researching a consumer price index for the elderly, and alternative measures like The Elder Index have been suggested by the National Council of Aging.
In conclusion, the article highlights the challenges faced by older Americans in maintaining their purchasing power in the face of inflation and emphasizes the need for improvements in the COLA calculation to better reflect the expenses of seniors. As an expert, I advocate for considering alternative measures that may provide more accurate and equitable adjustments to Social Security benefits.
