Inflation impacts everything from the rent you pay every month for your home to the groceries you get at the supermarket or the medicines you need from CVS or Walgreens.
That’s why several federal programs have increases that provide payments to beneficiaries and users constantly review the indicators of potential inflation for the following year, and Social Security is one of these programs that do that. It has its own augmentation algorithm, which is called cost of living adjustment (COLA).
The Social Security COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is published every month by the Bureau of Labor Statistics (BLS). The idea of the COLA increment is that the beneficiaries do not lose purchasing power in the face of inflation.
The Social Security Administration takes the CPI-W average for the months of the third quarter of each year, that is, July, August and September, and then compares the figures with the same period of the previous year.
The Recent Social Security COLA Increases
For example, the CPI-W average in the third quarter of 2023 was 301,236, while in 2022 it was 291,901. This difference of 3.2% was used to set the QUEUE for 2024, which was implemented from January of that year.
Now, what if the CPI-W figures are lower than the previous year’s? Well, in that case, no increase will be applied to Social Security benefits, or retirement payments, or Supplemental Security Income (SSI), or Social Security Disability Insurance (SSDI). This situation is rare and has only happened three times since 1975.
The Senior Citizens League (TSCL), an advocacy organization for seniors, estimates that the COLA by 2025 could be around 2.66% (about 2.7%). In April, the average monthly benefit for retired workers was $1,915, meaning that a 2.7% increase would bring the average benefit to about $1,967, or just over $23,600 a year.
Since the COLA has been applied annually, since 1975, the average increase has been 3.77%, but in recent years there have been strong COLA: a COLA of 8.7% in 2023 and 5.9% in 2022.
Although any increase in Social Security payments is a positive for retirees, one disadvantage is that, despite the adjustment, Social Security checks may not be enough to cover all living expenses.
You can intuit that this is extremely relevant when considering health care costs, which are one of the biggest expenses for older people and are increasing rapidly. For example, the PwC Institute of Health Research estimates a 7% increase in medical costs by 2024, more than double the COLA of that year.
The Maximum Social Security Benefits You Could Expect in 2024
The maximum amount of benefits you can get, being a beneficiary of Social Security and its various programs, depends on several aspects, starting with the age at which you decide to start receiving payments. In 2024, these are the maximum values you could expect:
- Retiring at age 62: $2,710 per month.
- Retiring at the full retirement age (FRA), between 65 and 67 years: $3,822 per month.
- Retiring at 70 years: $4,873 per month.
