What Will The 2024 COLA Look Like?

In September 2024, more than 48 million retirees receiving Social Security benefits took home around $1,674 monthly. According to a survey by the national polling firm Gallup, this is an essential source of income for over 90 percent of seniors receiving Social Security.

The yearly cost-of-living adjustment (COLA) is arguably the most anticipated announcement for the many retirees who have grown to rely on Social Security income to help cover their costs.

The cost-of-living adjustment (COLA) is the average annual increase to a recipient’s benefit to account for inflation. If the prices of goods purchased by Social Security recipients rise, their payments should increase proportionally (at least in an ideal world). Since 1972, the COLA for the program has been determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W consists of eight major spending categories and an assortment of subcategories, each with its own percentage weighting. These are essential because they allow the CPI-W to be stated as a single number, which can then be readily compared to the prior-year period to establish whether prices for a big basket of goods and services are increasing or decreasing.

Although certain components of Social Security might be scary or difficult to comprehend, calculating the COLA is straightforward. If the average CPI-W measurement for the current third quarter — July through September — is greater than last year’s, inflation has occurred, and Social Security beneficiaries receive a “rise” in the following year. Please bear in mind that this “increase” is intended to meet inflation and not exceed it.

In 2024, retirees (receiving Social Security), disabled employees, and survivor beneficiaries saw an unprecedented boost in their monthly payments. The cost-of-living adjustment was 8.7%, and this was the biggest percentage rise in monthly checks since 1982. What does this mean in terms of dollars? The average monthly payment increased by $146.

The explanation for this enormous increase in Social Security payments is a more than four-decade high in the current inflation rate. In June 2024, the annual inflation rate in the United States reached a staggering 9.1%. Though the year-over-year change decreased slightly from this 9.1% pace between July and September (the months used for the COLA calculation), it is still much above historical averages, making 2024’s cost-of-living increase the highest in decades.

To be more precise, energy, food, and housing costs have mostly contributed to the rise in the inflation rate. U.S. Statistics released by the Bureau of Labor Statistics for September 2024 showed that the year-over-year rise in energy costs, including fuel, utilities, and electricity, was close to 20%, as measured by the CPI-U (Consumer Price Index for All Urban Consumers). The CPI-U is an inflationary metric comparable to the CPI-W. In the meantime, food and housing expenditures increased by 11.2% and 6.6% over the previous year.

However, recipients should appreciate this big payout increase while it lasts, as there is a very real potential that the cost-of-living adjustment may return to 0% in 2024 for the fourth time in 15 years. As a result of the growing inflation rate, the Federal Reserve had no alternative but to aggressively raise interest rates to reduce borrowing and move pay power from employees to corporations. To be direct, the nation’s central bank is applying the brakes on the U.S. economy to prevent more damage from inflation. It is a necessary move but one that Social Security recipients in 2024 may find difficult.

The last time the United States entered a real recession was from December 2007 to June 2009, as opposed to the two-month slump induced by the COVID-19 pandemic in 2020. As U.S. economic growth slowed, there was a temporary increase in energy commodity prices, followed by a steep decline in practically all commodities. The average third-quarter CPI-W measurement decreased in 2009 and 2010, resulting in no COLAs in 2010 and 2011.

In recent months, it has become increasingly likely that the U.S. will enter a recession next year. Although the dynamics of the Great Recession over a decade ago are very different from what the U.S. economy is currently facing. If this were to occur, there is a significant chance that the primary drivers of year-over-year inflation in 2024 would experience price decreases. In short, the average CPI-W reading for the third quarter of 2024 might be lower than the same period in 2024, resulting in a 0% COLA for 2024.

Admittedly, this is a really early forecast. A year ago, nearly no one predicted that the inflation rate would exceed 9% by mid-year or that the Fed would increase the federal funds rate by 375 basis points before the end of 2024. However, there are indications that the 2024 Social Security COLA might fall short of expectations.

For more retirement news, try:

https://drnewsemails.com/travel-and-leisure-tips-for-your-golden-years/?utm_medium=backstory