It's a bit premature to say that we've reached the tail end of 2023, seeing as how we still have a quarter of the year and change to go. In spite of that, many people are starting to get focused on 2024.
Employers are making plans to roll out benefits packages. Employees are making year-end tax-planning lists. And some people are already halfway through their holiday shopping.
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Another 2024 item on a lot of people's minds is next year's Social Security cost-of-living adjustment, or COLA. In 2023, seniors on Social Security saw their largest COLA in decades -- an 8.7% bump -- thanks to raging inflation.
But inflation has cooled nicely in 2023, giving everyday consumers and Social Security recipients alike their share of relief. And that's a good thing. What's a less good thing, at least in the minds of seniors, is that cooling inflation is apt to lead to a much smaller Social Security COLA in 2024 than in 2023.
But inflation ticked upward ever so slightly in August. And that's something we need to account for in the context of a 2024 COLA.
A smaller but notable raise
There's just no way 2024's Social Security COLA is going to look anything like 2023's. But in light of recent inflation data, it could rise beyond previous projections.
Financial experts have been saying that next year's Social Security COLA is likely to fall somewhere in the vicinity of 3%. But given August's inflation data, seniors might end up with a COLA that's a notch higher -- somewhere around 3.2% or 3.3%.
Of course, we won't really know what next year's COLA will look like until mid-October. That's because COLAs are based on third quarter data from the Urban Wage Earners and Clerical Workers (CPI-W), a subset of the more widely talked-about Consumer Price Index.
In July, the CPI-W increased 2.6% on an annual basis, bring the index to a level of 299.899. In August, the CPI-W rose 3.4% on an annual basis, resulting in an index level of 301.551.
Clearly, without CPI-W data from September, we can't pinpoint an exact Social Security COLA for 2024. But the news might end up being slightly better than seniors were initially expecting.
Let's not hope for rising inflation
If inflation picks up even more in September, seniors on Social Security could potentially see themselves getting a COLA in the 3.5% to 4% range. But rising inflation is really not something to root for.
As is it, COLAs have done a dreadful job of helping seniors maintain buying power in the face of inflation. So those on Social Security should not spend the next few weeks hoping for inflation to surge again. What they might gain in the form of a slightly higher COLA, they'll lose in the form of higher gas prices, grocery prices, utility prices, and more.
Of course, some senior advocates have made the argument that Social Security COLAs should not be pegged to the CPI-W at all, but rather, a senior-specific index. That sort of change could result in much higher COLAs for seniors down the line. But since it's not on the table right now, the CPI-W is what we're stuck with.
