Social Security cost-of-living adjustment may be 2.7% in 2024, new estimate finds

New government data shows the annual rate of inflation dipped to the lowest level in about two years as of May.

But that may be bittersweet news for Social Security beneficiaries, as they may receive a much lower cost-of-living adjustment in 2024 than they did this year.

The Social Security COLA could be 2.7% in 2024 based on the latest consumer price index data, according to The Senior Citizens League, a nonpartisan senior group.

More from Personal Finance:
‘Quiet luxury’ may be Americans’ most expensive trend ever
3 steps to take before you start investing
Social Security may be key issue for GOP presidential rivals

That would be substantially lower than the record 8.7% COLA Social Security beneficiaries saw this year, the highest increase in four decades due to record high inflation.

The CPI rose 4% from a year ago as of May, the U.S. Department of Labor said on Tuesday, and 0.1% for the month.

The subset of the index used to determine next year’s cost-of-living adjustment, the consumer price index for urban wage earners and clerical workers, or CPI-W, was up 3.6% year over year — the lowest level since March 2021, The Senior Citizens League noted.

To be sure, the latest estimate for the 2024 COLA is subject to change, and could even point to a lower benefit increase for next year as inflation continues to subside, noted Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.

The Social Security Administration calculates the annual COLA by determining the percentage change in the CPI-W from the third quarter of last year to the third quarter of the current year. If there is no increase, there is no COLA.

Over the past 10 years, the average Social Security COLA was 2.6%, according to Johnson.

Even though inflation is cooling, prices are still high despite the rate of price increases slowing, Johnson said.

Some categories, like insurance and health-care costs, rarely decline, she noted.

“The fact that we’re even forecasting a COLA at all means prices are higher than they would be a year ago,” Johnson said.

“That part of it is still very problematic for retirees and disabled Social Security beneficiaries who are living on fixed incomes,” she said.

The record 8.7% COLA for 2023 was expected to give beneficiaries more than $140 more per month starting in January, according to the Social Security Administration.

Richard Fiesta, executive director of the Alliance for Retired Americans, said this year’s benefit boost has had a “mitigating effect” for retirees.

New $35 per month caps on insulin for Medicare beneficiaries starting in January, put into effect by the Inflation Reduction Act, have also helped, he said.

“We are definitely seeing from our members that that is having an immediate and positive effect on their pocketbooks,” Fiesta said.

Longer term, both The Senior Citizens League and Alliance for Retired Americans, as well as other groups, hope the measure for the annual COLA can be changed to the consumer price index for the elderly, or CPI-E.

The measure would more accurately reflect the categories retirees spend their money on, Fiesta said, such as health care, food and fuel.

Democratic Social Security reform proposals have included that change. However, not all experts are convinced the CPI-E would be a better COLA measure.