Personal Finance

Social Security cost-of-living adjustment could be 3.1% for 2024, according to early estimate

Key Points
  • Social Security beneficiaries saw the biggest cost-of-living adjustment in 40 years for 2023.
  • But as inflation subsides, next year's benefit increase may not be as generous, a new estimate finds.
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New government data shows inflation is cooling, and that means Social Security beneficiaries will likely see a lower cost-of-living adjustment next year.

The Social Security cost-of-living adjustment for 2024 could be 3.1%, according to a new estimate from The Senior Citizens League. That's well below the 8.7% increase to benefits beneficiaries saw this year, which was the highest bump in four decades.

The new estimate comes as new consumer price index data shows inflation rose 4.9% over the past year as of April and 0.4% for the month — fueling hopes that the rise in the cost of living will continue to slow.

Inflation rose 4.9% in April from a year ago, less than expectations
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Inflation rose 4.9% in April from a year ago, less than expectations

The subset of the data used to calculate the annual Social Security cost-of-living adjustments — called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W — rose 4.6% over the past 12 months and 0.6% for the month based on the April data.

The 3.1% estimate for the cost-of-living adjustment is preliminary and subject to change, said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.

The Social Security Administration determines the annual cost-of-living adjustment based on third-quarter CPI-W data for July, August and September. The adjustment is based on percentage increase for the third quarter from one year to the next. If there is no increase, the adjustment is zero.

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Benefits' buying power dropped 36% since 2000

The Senior Citizens League also evaluated how well Social Security benefits have kept up with rising costs and found they have fallen short.

Over the past year amid persistent high inflation, eggs were the fastest-growing cost for seniors, based on the group's analysis of Bureau of Labor Statistics data through February. Other categories that landed in the top five fastest growing costs include apples, bread, coffee and dental visits.

Since 2000, Social Security benefits have lost 36% of their buying power, according to The Senior Citizens League's calculations.

To be able to live as well on Social Security benefits as beneficiaries did in 2000, today's retirees would need an extra $516.70 per month, the nonpartisan senior group found.

The updated analysis of the loss in buying power — measured from January 2000 through February 2023 — improved from a 40% decline found in last year's study. Yet the slightly improved 36% loss in buying power is still one of the deepest losses recorded, according to the group's analysis.

Eggs also topped the list of fastest-growing costs for seniors since 2000. Other categories in the top five include prescription drugs, heating oil, dental services and Medicare Part B premiums.

One caveat to a record high cost-of-living adjustment this year is the extra money — estimated to be more than $140 per monthmay help prompt higher levels of spending among older Americans, according to research from Bank of America Institute.

While higher spending may complicate the fight against higher inflation, it is delayed relief for older Americans, whose cost-of-living adjustment was lower than price growth in 2022.

"The average retiree has found living with these high rates of inflation extremely difficult," David Tinsley, senior economist at Bank of America Institute, previously told CNBC.com.