Social Security benefits get smaller increase for 2024. Why is this adjustment lower?
Social Security beneficiaries are set to see their monthly benefits increase by 3.2% in 2024, the Social Security Administration announced Thursday, Oct. 12.
The 2024 cost-of-living adjustment, or COLA, will add about $57.30 more per month for beneficiaries receiving the average benefit of $1,790, according to The Senior Citizens League.
Although the changes take effect in December, beneficiaries won’t see the COLA increase applied until their first Social Security checks of the new year, the SSA says.
The adjustment announcement follows September’s Consumer Price Index Report, which determined that prices climbed 3.7% in the 12-month period that ended in September and 0.4% between August and September. The CPI was also announced Thursday.
This adjustment is significantly lower than the 8.7% COLA for 2023, which was the highest increase in 40 years, but experts said beneficiaries shouldn’t be concerned about the lower change.
Here’s what to know about 2024 cost-of-living adjustment.
How is the COLA determined?
Social Security benefits are adjusted annually to account for inflation.
“The change means that inflation no longer drains value from Social Security benefits,” according to the administration.
The SSA uses the previous year’s Consumer Price Index for Urban Wage Earners and Clerical Workers in July, August and September to determine the coming year’s COLA. So for example, 2024’s COLA was determined using the past three months’ inflation rates.
The rates are averaged, then they are compared to the same average from the previous year. The difference between the two averages is the amount of the COLA.
“It’s sort of an after the fact compensation for price inflation that has already occurred,” Chuck Blahous, senior research strategist at the Mercatus Center at George Mason University, told McClatchy News. “There is about a year and a quarter delay in between when beneficiaries experience the price inflation and when they are basically compensated for it.”
Why is the 2024 COLA smaller than previous years?
In December 2021, the Social Security Administration enacted a 5.9% COLA for 2022, which at the time was the biggest adjustment since 1982. Inflation quickly outpaced this adjustment though, and in December 2022, the administration implemented an even higher COLA.
Ideally, the cost-of-living adjustment will be close to the same as annual inflation.
The last two adjustments have been out of sync with inflation, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. The 2022 COLA was too small and the 2023 COLA was too big.
“In 2021, inflation shot up to 7.8%, yet the COLA for 2022 was only 5.9%. And that’s because it was looking backwards,” Munnell told McClatchy News. “Then, inflation came down in 2022 to 6.3%, and yet we got a really high COLA because we were looking back on those high inflation months or quarters.”
This year’s adjustment of 3.2% is near the current annual inflation rate, which means benefits will maintain their value as prices fluctuate.
“The following year’s COLA doesn’t fully compensate always for the inflation in the previous year when inflation is rising, but it overcompensates in the following year when inflation has sort of stabilized and is coming down,” Munnell said. “Over the whole inflationary cycle, it comes out just right.”
A lower COLA isn’t a bad thing, experts say
The 2024 adjustment isn’t a surprise — experts have been predicting an approximately 3.2% COLA. The 2024 COLA is also higher than the average cost-of-living adjustment over the last 20 years, which was 2.6%, according to The Senior Citizens League.
A smaller adjustment isn’t a bad thing, according to experts.
“Big COLA means that there was a lot of price inflation, and you’re getting compensated for a year and a quarter after the fact,” according to Blahous. “But in the meantime, you’ve suffered a lot. So a smaller COLA means there has been less disruption in terms of price inflation, and so that’s actually relatively good news.”
More than anything, this year’s COLA is an accurate adjustment, reflecting easing inflation in the economy post-pandemic and ensuring consumers’ purchasing power.
“It is an accurate thing where the COLA reflects the increase in inflation for that year” Maya MacGuineas, the Committee for a Responsible Federal Budget’s president, told McClatchy News. “The benefit bump up that (beneficiaries are) getting is going to allow them to maintain the same purchasing power so it’s not going to make them better off or worse off.”
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