The U.S. economy faced its most aggressive inflation in 40 years in 2024. This surge affected every American, with rising costs for essentials like gas, groceries, and utilities. However, those relying on Social Security felt the pinch more acutely. The 5.9% cost-of-living adjustment (COLA) for that year couldn’t keep pace with the inflation rate, leading to a decrease in the purchasing power of Social Security beneficiaries.
A Record-Breaking Adjustment in 2024
In response to the challenges of 2024, Social Security benefits saw a historic 8.7% COLA in 2024. This was the most significant increase over four decades, providing a much-needed financial boost for retirees. However, this substantial adjustment also hints at a potential downside for the coming year.
Predictions for 2024: A Modest Increase
The primary purpose of Social Security’s annual COLA is to ensure that the benefits align with inflation rates, preserving the purchasing power of the payouts. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter (from July to September) is the primary determinant for the COLA.
While the exact data for determining the 2024 COLA isn’t available yet, early predictions suggest a more modest increase. With inflation rates slowing down – evidenced by the 2.3% rise of the CPI-W in June 2024 compared to 9.8% in June 2024 – experts, including The Senior Citizens League, anticipate a 3% COLA for 2024.
Implications of a 3% COLA for Beneficiaries
To understand the real-world impact of this predicted 3% COLA, let’s break down the numbers:
- The average retired worker could expect an increase of approximately $55.12 monthly.
- Spouses receiving benefits might see an additional $26.79 per month.
- Survivors could anticipate an extra $43.56 monthly.
- Disabled workers might receive around $44.59 more each month.
The Bright Side: Regaining Buying Power
While a 3% COLA might seem underwhelming, especially after the record-breaking adjustment in 2024, there’s a silver lining. Rapid inflation cooling means that the real value or buying power of Social Security benefits has increased. The benefits are set to recover the purchasing power lost in 2024.
For context, the CPI-W rose by 9% in the first half of 2024, surpassing the 5.9% COLA by 3.1%. However, in the first half of 2024, the CPI-W only increased by 4.5%, making the 8.7% COLA exceed the inflation rate by 4.2%. This means that the buying power lost in 2024 has not only been regained but has also seen a surplus. If this trend persists, retirees might find more financial flexibility in the latter half of 2024.
The Bottom Line
While the predicted 3% COLA for 2024 might seem modest, viewing it in the broader context of economic trends and the recent history of Social Security adjustments is essential. The system is designed to adapt and ensure beneficiaries maintain purchasing power, even in financial challenges.