Don’t Expect Too Much Out Of The  2024 COLA

If the current trend in inflation rates continues, the Social Security cost-of-living adjustment for 2024 might be far below 3%. Depending on what transpires in the third quarter, there is a good probability that no COLA will be awarded to recipients in 2024.

The Senior Citizens League’s Mary Johnson underlined it is essential to recall that inflation reached its greatest point in forty years in 2024, resulting in a near-record COLA of 8.7% in 2024. Given how the Social Security Administration calculates its yearly adjustment, this indicates that next year’s COLA might be as low as zero percent.

Johnson states she would be pleased if there is a moderate COLA and if the year closed with inflation finally leveling out and prices falling into a more usual growth pattern.

Johnson notes that the real prediction for the 2024 COLA remains unknown due to the unpredictability of inflation rates and the significance of third-quarter data for the final amount. Hence, The Senior Citizens League will not begin formal predictions of the COLA for 2024 until May. Still, based on inflation figures from February, the COLA appears to be below 3% and might dip into the 2% area or even below.

What is the COLA Formula?

CPI-W, or consumer price index for urban wage earners and clerical employees, is used by the Social Security Administration(SSA) to determine benefit increases. The SSA calculates the COLA by comparing the average CPI-W for July, August, and September to the previous year’s figure.

According to Johnson, the monthly average rate of CPI-W inflation is decreasing as of mid-March. She said that every month, the CPI-W is used to calculate the COLA for the next year; she calculated the third-quarter inflation rate by using the average rate for the past 12 months. Even while month-to-month inflation climbed in January and February, the 12-month average has decreased. Inflation has been reducing, but not as quickly as the Fed and analysts had hoped.

If the monthly inflation trend continues for several months, the COLA might range somewhat higher than the present prediction. Still, there are too many unknowns to predict exactly what would occur with certainty.

How a 0% COLA Could Develop

According to Johnson, the only months that factor directly into the COLA calculation are those in the third quarter – meaning July, August, and September. To calculate the COLA, the SSA combines the CPI-W readings from these months, divides the sum by three to obtain an average third-quarter value, and then compares it to the same reading from the previous year.

Simply put, if the average reading for the current year is lower than the previous year’s, the CPI-W, as measured by the average price of goods and services, has decreased yearly.As Johnson notes, this has occurred a couple of times since the CPI-W was implemented in 1975, and in such instances, Social Security payments have stayed unchanged from year to year.

In that case, there is no COLA, and given the sky-high inflation we witnessed in the third quarter of last year and the fact that inflation is reducing, albeit slowly, it is feasible that there will be no COLA in 2024, Johnson argues. This likely comes as a shock and a source of fear to many older citizens, who are experiencing genuine anguish owing to a decline in purchasing power.