Cost-of-living adjustment makes sure the backbone of our retirement system keeps pace with rising prices
With the release of the September CPI-W inflation number, the Social Security Administration announced that the COLA for 2024 will be 3.2% . The adjustment is based on the increase in the CPI-W for the third quarter of 2023 over the third quarter of 2022.
Social Security’s COLA does the job it’s meant to do. The last few years make that point in spades. The first column of Table 1 shows the December-to-December increase in the CPI-W each year from 2020 through 2022, with an estimate for 2023. The second column shows the COLAs announced in 2020 through 2023, which take effect in the following year. In essence, Social Security’s goal is to compensate for the increase in prices of 1.4% in 2020 by raising benefits by 1.3% in 2021.
On a much smaller scale, this year’s COLA looks somewhat low compared with our estimate of the increase in prices for 2023. But my best guess is that inflation next year may dip below 3% and that the Social Security COLA announced next fall will be higher than actual inflation.
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