Social Security 2024: Why next year’s COLA boost will be so much smaller

More than 70 million Americans are set to receive a 3.2% increase on their Social Security benefits and Supplemental Security Income (SSI) in 2024. The cost-of-living adjustment (COLA), announced on Thursday, is significantly lower than 2023’s boost—a shift that can be attributed to an easing inflation trend in the United States. Here’s a breakdown of the key takeaways you need to understand the upcoming change.

What is COLA?

Required by legislation enacted in 1973, COLAs are calculated using an inflation metric from July through September to ensure that Social Security benefits and SSI reflect the rate of inflation. COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, which essentially tracks the costs of consumer goods. This means that, unlike other sources of post-retirement income, Social Security accounts for changing market conditions.

How does this boost compare to the last one?

The boost for 2023 was an impressive 8.7%—the largest increase since 1981. That was due to record-high levels of inflation, which were already intense in 2022. Now, as the levels begin to settle, the 2024 COLA is slightly lower. However, experts say that the 3.2% bump is still higher than the 20-year average of 2.6%. 

??“Social Security and SSI benefits will increase in 2024, and this will help millions of people keep up with expenses,” Social Security’s acting commissioner, Kilolo Kijakazi, said in a release.

Some critics argue that the adjustment isn’t actually accounting for the extent of inflation in recent years or the living habits of retired individuals, and that another metric—called the Consumer Price Index for the Elderly—would better represent the kinds of purchases that beneficiaries are making.

So how much are the benefits?

The AARP has estimated an average increase of $59 per month, bringing monthly totals up from $1,848 to $1,907.

When does the adjustment go into effect?

According to the release, more that 66 million Social Security beneficiaries will see the 3.2% adjustment beginning in January 2024. Increased payments to approximately 7.5 million people receiving SSI will begin on December 29, 2023. Recipients will need to have an account by November 14 to see their COLA notice online.