For many Americans, high inflation is a serious concern. Consumer prices rose 8.5% in July, marking the 17th consecutive month that inflation exceeded the Federal Reserve’s 2% target. Increasing energy and food costs are affecting grocery stores and gas stations.
For July, the Social Security Administration’s (SSA’s) inflation gauge came in at 9.1 percent, one of three months used to determine the final COLA (Cost of Living Adjustment), which is scheduled to be announced in October. Benefit increases will take effect in January 2024.
David Certner, legislative counsel and director of legislative policy at AARP, says it’s impossible to be accurate until we see the data for the next two months. Still, it’s probably safe to say that we can expect a COLA in the 8 to 10 percent range, which would be the biggest increase since 1981 when the COLA was 11.2 percent.
Estimates are preliminary; changes in consumer prices will determine the actual COLA through September. In 2024, a 9 percent COLA would boost Social Security retirement benefits by about $150.
In his Calculated Risk blog, economist Bill McBride estimates a similar range of 8.5 percent to 9 percent. A nonpartisan fiscal policy think tank, the Committee for a Responsible Federal Budget, predicted a 9.9 percent COLA if things continue on trend. However, it could be 8.9 percent if there is no more inflation.
A COLA of 5.9 percent in 2022 increased the average retirement benefit by $92. As a result of a 1.3 percent adjustment, payments in 2021 increased by $20 a month on average.
Inflation has been factored into Social Security benefits since 1975. Specifically, they are adjusted using the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers), which measures monthly price changes for a basket of goods and services, including food, energy, and medical care.
Retirees could see a monthly increase of $148 to $150.
Retired workers received $1,670.95 in Social Security benefits in July. A COLA of 8.9% would increase that figure to $1,819.66, giving retirees an extra $148.71 per month.
Any COLAs put in place after you turn 62 (the age of eligibility for Social Security) will be added to your benefit even if you do not get benefits until later. The COLA in 2024 will not be missed by future retirees who delay Social Security beyond next year. The best way to maximize your monthly benefits is to wait as long as possible before claiming.
Individuals born in 1960 will meet their full retirement age at 67, assuming a full benefit of $1,670. The monthly payout will drop by 30% if the individual claims the benefit at age 62. In contrast, the monthly payout would increase by 24% if the claimant waited until they reached 70 to claim benefits.
Finally, retirees may not feel like they got a raise when receiving a massive COLA in 2024. The purpose of COLAs is to keep benefits in line with inflation, and inflation just hit its highest level in 40 years. Therefore, nobody should be surprised if 2024 brings the largest COLA in 40 years.