In 2022, the country experienced the highest inflation rate in four decades, resulting in increased costs of gas, groceries, and utilities.
Cost-of-Living Adjustment (COLA) has been a major concern for retired workers on Social Security in the United States
Unfortunately, the 5.9% Cost-of-Living Adjustment applied to Social Security benefits last year failed to keep up with inflation, leading to a loss of buying power for beneficiaries.
However, the system is designed to correct such imbalances, and it has done so this year. In 2023, Social Security benefits received a historic 8.7% Cost-of-Living Adjustment, the largest increase for retired workers in over 40 years. This substantial rise has undoubtedly provided much-needed financial relief and has the potential to restore the buying power lost in the previous year.
But there is some not-so-good news. Following two consecutive years of unusually high Cost-of-Living Adjustment, Social Security beneficiaries can expect a much smaller increase next year. The annual Cost-of-Living adjustments are intended to ensure that benefit payouts keep up with inflation. They are determined based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter (July through September) of each year.
While the data needed to determine the 2024 Cost-of-Living Adjustment is not yet available, experts are already making estimates. Inflation has significantly slowed down over the past year, with the CPI-W rising only 2.3% in June 2023 compared to 9.8% in June 2022. The Senior Citizens League estimates that Social Security recipients may receive a 3% raise next year.
Despite the prospect of a smaller Cost-of-Living Adjustment in 2024, there is a positive aspect to the situation
Inflation has cooled down so rapidly over the past year that Social Security benefits have regained a considerable amount of buying power. In fact, benefits are expected to recover all the buying power lost in the previous year.
It is important to note that the first half of 2022 saw a 9% increase in the CPI-W, surpassing the 5.9% Cost-of-Living Adjustment by 3.1%. However, the first half of 2023 witnessed only a 4.5% increase, resulting in the 8.7% Cost-of-Living Adjustment overshooting inflation by 4.2%.
Overall, the trend suggests that Social Security beneficiaries may experience an improved financial situation in the second half of 2023, as benefits regain lost buying power. Although a smaller Cost-of-Living Adjustment is anticipated for 2024, the significant recovery from last year’s inflationary impact brings some relief to retirees.