Many people have been struggling with soaring inflation since mid-2021. But thankfully, the pace of inflation has been easing over the past year.
In fact, April’s Consumer Price Index (CPI) showed a cooling of year-over-year inflation. But while that might provide some nice relief for consumers, it could also translate to a much smaller cost-of-living adjustment (COLA) for Social Security recipients in 2024.
Seniors should not expect a giant raise next year
Social Security COLAs are based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the CPI. In April, the CPI-W was up 4.6% from a year prior, while the broader CPI was up 4.9%.
Now, this doesn’t mean that next year’s Social Security COLA is looking to be 4.9%. In fact, COLAs are based specifically on third-quarter CPI-W data, which we clearly won’t have for quite some time.
But what we do know is that inflation levels have been steadily declining since the start of the year (and since the middle of 2022, for that matter). So if that trend continues, it won’t be shocking to see next year’s Social Security COLA come in somewhere in the 3% range.
Compared to some COLAs, 3% isn’t bad. In fact, seniors have, in the past, gotten a 0% COLA, so it’s really all relative. But the last two Social Security COLAs to come down the pike were far more generous.
At the start of 2022, Social Security benefits rose 5.9%. At the time, that raise was hailed as the largest one to arrive for seniors in decades. But then 2023’s COLA came in at 8.7% and trumped the prior year’s COLA significantly.
Because seniors on Social Security have gotten used to larger COLAs, a COLA in the 3% range might come as a shock — even though that number would be the highest COLA since 2012, not counting the two just-mentioned figures for 2022 and 2023.
Social Security recipients should prepare now
Cooling inflation is a good thing for consumers and the broad economy. In fact, the Federal Reserve has made it clear that it wants to see the CPI get down to 2%, and there’s a chance (albeit a small one) that could happen in 2023.
But either way, seniors who get most of their retirement income from Social Security should gear up now for the fact that next year’s COLA may not be much to write home about. And those with extra money on hand from this year’s Social Security raise may want to bank it in case they wind up needing it in 2024 or beyond. Now’s also a good opportunity for seniors to reassess their spending and see about making cuts.
Ultimately, Social Security COLAs go hand in hand with inflation. So the higher the latter is, the higher the former is apt to be. We don’t know what inflation will look like for the rest of 2023. But it’s fair to say that it will continue cooling — and that Social Security recipients should expect a smaller COLA to come of that.
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