Social Security Beneficiaries May Not Receive a “Raise” In 2024

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In September, the more than 48 million retired workers currently receiving Social Security benefits brought home about $1,674 for the month. This may not sound like much, but based on a survey conducted earlier this year by national pollster Gallup, it is a necessary source of income for nearly 90% of seniors receiving Social Security.

For the many people who have come to rely on Social Security income to pay for their expenses in retirement, the annual cost of living adjustment (COLA) is pretty much the most anticipated announcement of the year.

Image source: Getty Images.

Social Security cost of living adjustment helps beneficiaries keep pace with inflation

COLA represents the payout increase recipients get most years to account for inflation. If prices rise for the items Social Security beneficiaries buy, their benefits would have to rise to match this rise (at least in an ideal world).

For the past 47 years, the consumer price index for urban wage earners and white-collar workers (CPI-W) has been the COLA determinant of the program. As I described earlier, the CPI-W has eight major spending categories and a large number of subcategories, all of which have their own respective percentage weightings. These are important because they allow the CPI-W to be expressed as a single number, which can then be easily compared to the previous year’s period to determine whether prices are rising or falling for a wide range of goods and services.

While some aspects of Social Security can be intimidating or difficult to understand, calculating the program’s COLA is actually very simple. If the average CPI-W value of the current third quarter – that is July through September – is higher than the comparable period of the previous year, inflation has set in and Social Security recipients will get a “raise” in the coming year . Please note that this is an “increase” designed to match and not exceed inflation, which is why I have “increase” in quotes.

The annualized percentage difference in the average CPI-W values ​​for the third quarter, rounded to the nearest tenth of a percent, determines how large the COLA is for the following year.

Chart of US inflation since the mid-1970s, peaking in the early 1980s and since 2020.

Rapidly rising inflation has led to a major Social Security COLA in 2023. US inflation figures by YCharts.

Next year’s COLA is historic in several ways

In 2023, retirees, disabled workers and survivors will enjoy a historic monthly payout increase. As reported by the Social Security Administration in the second week of October, the cost of living adjustment was 8.7% next year. On a percentage basis, it will be the largest increase in monthly checks since 1982. Meanwhile, on a dollar nominal basis, it will be the largest year-over-year jump on record.

What does this mean on a dollar basis? For the above 48 million retired workers, an average monthly pay increase of $146 is on the way in 2023.

The reason for this massive rise in Social Security payouts has to do with a record more than four decades before prevailing inflation. In June, the annual change in US inflation reached a staggering 9.1%. Although the year-over-year change between July and September (the months used for the COLA calculation) decreased slightly from this 9.1% rate, it remains well above historical standards – thus the highest point in the years 2023 for the cost of living in 2023 adjustment.

To be more specific, the cost of energy, food and shelter has been primarily responsible for driving up inflation. According to data released by the U.S. Bureau of Labor Statistics for September 2022, the year-over-year change in energy prices, including all fuel, utilities and electricity, was nearly 20%, based on the CPI for All Urban Consumers. (CPI-U). The CPI-U is a comparable inflation measure to the CPI-W. Meanwhile, the cost of food and shelter increased by 11.2% and 6.6% respectively from the same period last year.

Person buying groceries and giving his credit card to a cashier.

Image source: Getty Images.

Brace yourself for impact: There may be no Social Security COLA in 2024

However, beneficiaries should enjoy this significant payout increase while it lasts, as there is a very real possibility that 2024 could result in a 0% cost of living adjustment for the fourth time in a 15-year period.

With prevailing inflation soaring, the Federal Reserve has little choice but to aggressively raise interest rates to slow credit and shift wage power from workers to corporations. To be fair, the country’s central bank is slowing down the US economy to prevent inflation from doing further damage. It’s a necessary step, but one that could be painful for Social Security beneficiaries in 2024.

The last time we saw the US slip into a real recession — not the two-month slump caused by the COVID-19 pandemic in 2020 — was from December 2007 to June 2009. This was a period marked by a brief spike in energy commodity prices, and then an absolute decline in virtually all commodities as US economic growth slowed. In 2009 and 2010, the average CPI-W value for the third quarter decreased from the same period last year, resulting in no COLA being issued in 2010 and 2011.

While the dynamics of the Great Recession more than a decade ago are certainly different from the headwinds the US economy is currently facing, the likelihood of the US slipping into recession within a year has increased significantly in recent months. If that were to happen, there’s a good chance that the main contributors to annualized inflation will see price declines in 2023. In short, the average CPI-W value for the third quarter in 2023 could be lower than the comparable period in 2022, resulting in 0% COLA for 2024.

Admittedly, this is a terribly early prognosis. About this time last year, virtually no one predicted that inflation would rise above 9% by the middle of the year, or that the Fed would have raised the Federal Funds target by 375 basis points in less than a year. Nevertheless, the telltale signs are there that the 2024 Social Security COLA could disappoint.

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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