Social Security's cost-of-living increase could be only 3%: Will that be enough?
Seniors brace yourselves. You will likely be getting a 3% Social Security cost-of-living adjustment, or COLA, next year, well below the 8.7% increase in benefits received this year.
That's the new 2024 estimate from The Senior Citizens League (SCL), which translates to an average monthly benefit check hike of less than $54.
You can thank cooling inflation for the potentially paltry COLA. This year’s leap, the biggest increase in four decades, raised the average retiree benefit by more than $140 per month. The smaller COLA would sting the more than 70 million retired senior citizens and disabled workers who are still grappling with the lingering squeeze from high prices, such as those seen in housing and health care, according to the nonpartisan group.
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"Older consumers, especially those with lower retirement incomes remain vulnerable to some of the higher prices that haven’t gone down," Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told Yahoo Finance.
The crystal ball COLA estimate is based on inflation data from the Bureau of Labor Statistics released Thursday morning that showed consumer prices in July rose 3.2% over the prior year, a slight bump from June's 3% annual increase but far below last year’s soaring inflation.
The actual COLA, which the Social Security Administration is expected to announce in mid-October, is calculated by averaging together the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the year — July, August, and September of 2023 — and then comparing that figure with the same data from last year.
Higher prices still pack a punch for seniors
Nearly 8 in 10 retirees report in the most recent retirement SCL survey that lingering high prices continue to significantly impact household budgets.
"For example, housing costs are still up 7.7% for homeowners and rents are up 8% from this time a year ago. With the average COLA estimated at less than $54 per month in 2024, that may not leave a lot to cover rising rents or homeowners insurance in 2024 once the Social Security Administration deducts the Medicare Part B premium," Johnson said.
Adding to those higher costs, the latest data from the Bureau of Labor Statistics released Thursday morning showed that the costs for nursing homes and adult care surged by 2.4%, the largest monthly amount on record dating back to 1997, while overall consumer prices were up 0.2% in July from the previous month.
The CPI-W, the index that’s used to determine the COLA, was up 2.6% year over year. However, the average monthly inflation rate, especially since January of this year, rose slightly keeping the COLA estimate at 3% based on July price data, Johnson said.
Index does a 'mediocre job'
Why the expected slim COLA matters is that seniors are still grappling with high prices despite inflation coming off the boil.
"Our current method of adjusting Social Security benefits tends to only do a mediocre job on that because the index that’s used to adjust benefits doesn’t track the spending patterns of retired adults over the age of 62," Johnson added. "Instead, it surveys the spending of younger working adults, who have different patterns of spending."
For example, the CPI-W assumes that consumers spend only 7% of their incomes on healthcare costs, Johnson said, whereas surveys of seniors conducted by her organization have found that two-thirds spend up to 29% of their incomes on healthcare costs.
And elevated costs have smashed into older Americans’ ability to tap into healthcare. When asked, "Have you ever postponed or gone without medical services or products due to cost?" more than 6 in 10 of the Senior Citizen Leagues’ survey participants said they have postponed dental care including major services such as bridges, dentures, and implants. At the same time, 43% said they have delayed optical exams or getting prescription eyeglasses. Almost one-third of survey participants said they have postponed getting medical care or filling prescriptions due to deductibles, out-of-pocket costs, and unexpected bills.
So every little increase in those Social Security checks matters — even a slight 3% bump.
Meanwhile, the top concern of survey participants is legislative attempts to cut Social Security benefits.
Johnson said: "More than half are also worried their retirement income won’t be enough to cover essentials when older, and that changes to Medicare will mean beneficiaries will have to pay more for their healthcare."
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on Twitter @kerryhannon.
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