As inflation moderates, so does Social Security’s cost-of-living adjustment

The inflation data we got Wednesday gives us an idea of how much Social Security benefits will increase in 2024 — by 3.2%, or an extra $57 a month added to the average Social Security check, according to an estimate out from the Senior Citizens League. That’s a pretty modest cost-of-living increase compared to the last few years. Recipients got a 5.9% bump in 2022 and 8.7% in 2023 to account for rapidly rising costs. The annual cost-of-living adjustment, or COLA, is automatic, based on how much prices rose from the third quarter of one year to the third quarter of the next. It’s meant to stabilize the purchasing power of Social Security benefits. “Which is a nice feature of Social Security,” said Charles Blahous with the Mercatus Center at George Mason University. “It would be nice if it materialized instantly in seniors’ pockets,” Blahous said. Instead, each year’s January 1 adjustment makes up for last year’s higher prices. “You get the compensation for the inflation that’s already occurred.” Which works fine when inflation is low. But in 2021 and 2022, seniors and people with disabilities had to ride out months of rapid inflation before their benefits got a boost. “When inflation was spiking and the COLA was slow to catch up, what we saw was pretty significant increases in poverty rates for people 65 and older,” said Richard Johnson, who heads up the Urban Institute’s retirement policy program. The good news is this year’s smaller COLA reflects a more manageable pace of inflation. For most Social Security recipients, anyway. “The real divide is how secure housing is among the elderly,” said Teresa Ghilarducci, an economist at the New School. She said a 3% bump might be plenty for recipients who own their homes. Not so much for those stuck in the red-hot rental market. And for beneficiaries who’ve come to rely on big annual adjustments. “I’m actually worried about the variability and not the level of these increases,” Ghilarducci said, adding that some folks will be feeling whiplash come January 1.