One of the largest raises in years is being given to retirees. The increase in Social Security benefits in 2023 was 8.7%, the largest since 1981.
The amount of the upcoming Social Security cost-of-living adjustment (COLA) cannot yet be predicted with certainty.
CPI-W Determines Social Security Benefit Adjustment
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) average for the third quarter is compared to the average for the same quarter the previous year to determine the benefit increase.
To get a good idea of the COLA for the following year, we can look at the recent average CPI-W.
It appears pretty likely at this stage that the adjustment will be significantly less than the historically higher increase this year.
There isn’t yet a CPI-W for May. However, the inflation meter average for the months of February, March, and April is 4.97% greater than the average for the same three months in 2022.
But in the third quarter of last year, inflation skyrocketed. When compared to the average for the third quarter of 2022, the CPI-W’s three-month average has increased by only about 1.5%.
Read more: SSI Vs. Social Security: Understanding The Key Differences
Federal Reserve’s Impact on COLA Outlook
According to the current state of the figures, the COLA for 2024 may be less than 2%.
That would place it within the typical range of adjustments that retirees had been receiving for the most of the previous ten years prior to the 5.9% and 8.7% hikes of the last two years.
But it’s crucial to realize that circumstances are subject to change.
In each of the first four months of 2023, the CPI-W has increased progressively. If this pattern holds, the next COLA may be higher than the scenario suggests.
The Federal Reserve, on the other hand, might still increase interest rates in an effort to combat inflation.
Another possibility is that the American economy could experience a recession, which would lower inflation.
Read more: June Social Security Payments: When Will Your Benefit Arrive?