Inflation surged from the beginning to the end of 2022, making it difficult for US households to satisfy their financial obligations. Several people ended the year in debt because they were unable to pay their payments on time.
While inflation is still much above average, it is gradually declining. In June of last year, the Consumer Price Index (CPI) revealed an annual inflation rate of 9.1%.
Social Security Beneficiaries
In February, the CPI indicated a recent annual increase of 6%. That is a significant drop.
But, while dropping inflation is good news for consumers in general and especially budget-conscious retirees, it could bode difficulty for those receiving Social Security.
If the rate of inflation continues to decline, the Social Security COLA (cost-of-living adjustment) for the following year may not be noteworthy. And that’s being generous.
Seniors who get the majority or all of their retirement income from Social Security are yearning for relief from inflation. In this regard, it is a positive development that inflation is declining and expenses of living are falling in several key consumer categories.
In 2024, however, a persistent drop in inflation could result in a small or nonexistent Social Security COLA. COLAs are based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a subset of the CPI.
In January of this year, Social Security beneficiaries received a cost-of-living adjustment (COLA) of 8.7%, the most in decades. Yet, the CPI-W increased by only 5.8% annually in February. If this pattern continues, the 2024 COLA for senior citizens may be canceled.
In order for Social Security claimants to receive a COLA, the average CPI-W readings for the third quarter of the current year must be greater than the average CPI-W readings for the third quarter of the previous year. It is possible that this will not occur if inflation continues to decrease.
A persistent fall in inflation is not assured despite the Federal Reserve’s efforts to reduce inflation through the adoption of interest rate increases. Even if seniors receive a Social Security COLA in 2024, it may not be as big as the rise in 2023.
Take Advantage Of Higher Benefits Today
In 2024, Social Security recipients will not notice a decrease in their monthly payments if inflation remains low. No such thing exists as a negative COLA.
Since a $0 COLA is probable for 2024, seniors on Social Security should do everything they can to shore up their finances this year, given the possibility of a $0 COLA in 2024.
Due to the continued high cost of living, a number of individuals will be left with little budgetary flexibility.
Those who are able to save some of that money for a rainy day may be grateful for having done so if there is no COLA for the upcoming year.