If current inflation trends hold, the Social Security cost-of-living adjustment for 2024 could fall well below 3%, and depending on what happens through the third quarter, there is a decent chance that no COLA could be granted to beneficiaries next year.
This assessment was shared with ThinkAdvisor in a new interview with Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League. As Johnson emphasized, it is important to remember that inflation was at the highest level in 40 years in 2022, resulting in a near-record 8.7% 2023 COLA.
This simple fact, given the way the Social Security Administration calculates its annual adjustment, means there's "every chance" that next year's COLA could be as low as 0%.
"I will be happy if there is a modest COLA, and if we end the year with inflation finally leveling off and prices dropping toward a more typical growth pattern," Johnson says.
Johnson emphasizes that the actual outlook for the 2024 COLA remains uncertain, given the fact that inflation rates are unpredictable and the results for the third quarter will be crucial to the end figure. As such, The Senior Citizens League won't start any official estimates of the COLA for 2024 until May, but based on February inflation data, the COLA "looks like it will be below 3% and could fall into the 2% or even lower range."
The COLA Math
As Johnson points out, the Social Security Administration uses average inflation in the third quarter, based on the consumer price index for urban wage earners and clerical workers (referred to as the CPI-W), to calculate the benefit adjustment for the following year.
As of mid-March, Johnson says, the monthly average rate of CPI-W inflation is falling.
