While the CPI-W is seen as a better representation of retirees’ expenditures compared to the CPI-U, studies indicate it doesn’t always capture the genuine household expenses retirees face. Research by the advocacy organization, The Senior Citizens League, from earlier this year, revealed that the benefits haven’t kept up with inflation, especially for those aged 85 and older, even considering 2023’s significant Social Security COLA.
Upon analyzing the rise in COLAs over the past twenty years against the price changes in essential items like food and medicine, the study highlighted that had Social Security benefits kept pace with inflation, retirees would have gotten an additional $516 monthly on average in 2023. The research also found that what retirees could get for $100 in the year 2000, they could only get $64 worth of the same in 2023 with their benefits.
Debate Over CPI-E in Determining Social Security COLA
Given these findings, several advocates and legislators are urging Congress to reconsider how COLA is determined. They suggest adopting an experimental metric named the CPI-E, tailored for Americans aged 62 and above, to more closely mirror retirees’ actual spending trends and offer a precise COLA. Though this seems a straightforward fix to the declining value of Social Security benefits, experts warn of potential pitfalls.
Firstly, the CPI-E doesn’t always present a more accurate reflection of retiree-specific price variations than the CPI-W. Marc Goldwein from the Committee for Responsible Federal Budget commented that if the CPI-E was the standard for the past couple of years, COLA would have been notably less than the CPI-W-derived figure.
Furthermore, there are concerns regarding the financial viability of the trust fund that supports Social Security benefits. Critics highlight the need to resolve this impending financial crunch before implementing uniform hikes. Transitioning to the CPI-E might lead to an average 0.2% yearly increment in benefits, but it might also fast-track financial challenges. Goldwein suggests that without addressing this financial challenge, the Old Age and Survivors Insurance (OASI) Trust Fund may deplete its reserves by 2033.
It’s vital to understand that insolvency doesn’t imply a complete cessation of Social Security benefits. Rather, it could mean a broad 23% reduction in benefits, impacting newer retirees the hardest. In essence, while retirees might experience a short-term gain with a CPI-E based COLA, it could be detrimental without a concrete plan to sustain the OASI, potentially reducing their benefits in the future.
Projected Social Security COLA for the Upcoming Year
Due to consistent efforts by the Federal Reserve to regulate interest rates, inflation seems to be stabilizing. This implies that the next year’s COLA will be notably less than the 8.7% witnessed in 2023. However, preliminary forecasts still anticipate an above-average COLA.
A recent prediction for the 2024 COLA by The Senior Citizens League pegs it at 3.2%, surpassing the two-decade average of 2.6%. This would elevate the average monthly benefit by $58, bringing the average retiree’s monthly sum to $1,885.
When is the 2024 COLA Declaration Expected?
The Social Security Administration customarily discloses the final COLA in October. This year, the SSA will finalize the COLA at 8:30 a.m. ET on October 12, in sync with the Bureau of Labor Statistics’ release of third-quarter inflation data. Beneficiaries begin to see their updated COLA amounts at the year’s start, and those on retirement benefits typically receive their payment on each month’s third day. Hence, the 2024 COLA-enhanced payment is expected to reflect in the January 3 disbursement next year.