What Is the Cost of Living Increase for 2024?
Understand the 2024 Cost of Living Adjustment (COLA) and its impact on maintaining purchasing power for beneficiaries.
A Cost-of-Living Adjustment (COLA) represents an increase in various fixed incomes, primarily government benefits, designed to help maintain their purchasing power. This adjustment aims to counteract the effects of inflation, which can erode the value of money over time. By aligning benefits with the rising cost of goods and services, COLA helps ensure that recipients can continue to afford their daily necessities.
The 2024 Cost-of-Living Adjustment
For 2024, the Cost-of-Living Adjustment (COLA) saw an increase of 3.2%. This adjustment became effective with benefit payments made in January 2024. The primary application of this COLA is to Social Security benefits, which include payments for retirees, survivors, and individuals receiving disability benefits. This percentage increase directly impacts the monthly amount beneficiaries receive, providing them with more funds to manage rising expenses.
The 3.2% COLA for 2024 followed an 8.7% increase in 2023, reflecting a period where inflation had begun to cool down. The adjustment helps to ensure that the financial support provided through Social Security keeps pace with the general cost of living. This annual modification is a factor for millions of Americans who rely on these benefits as a portion of their income. The Social Security Administration (SSA) announces this adjustment each October.
Understanding COLA Calculation
The methodology for determining the annual Cost-of-Living Adjustment relies on a specific economic index. The Social Security Administration (SSA) calculates the COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures the average change over time in the prices paid by urban wage earners and clerical workers for a market basket of consumer goods and services. It is a subset of the broader Consumer Price Index (CPI-U) but is considered more reflective of the expenditures of Social Security beneficiaries.
To calculate the COLA, the SSA compares the average CPI-W for the third calendar quarter (July, August, and September) of the current year with the average CPI-W from the third quarter of the last year a COLA became effective. If there is an increase, the resulting percentage change is rounded to the nearest one-tenth of one percent.
The Social Security Act of 1972 mandated that these adjustments become automatic, beginning in 1975, to protect benefits from inflation. If the average CPI-W for the current year’s third quarter is equal to or less than the previous benchmark, no COLA is applied, meaning benefits do not decrease. This ensures that once a benefit level is established, it will not be reduced due to deflation.
Who Benefits from the 2024 COLA
The 2024 Cost-of-Living Adjustment primarily impacts Social Security beneficiaries. This includes retired workers, their spouses, and children. Those receiving Social Security survivor benefits, such as widows, widowers, and eligible children of deceased workers, also see their payments adjusted. Individuals receiving Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) also benefit from this annual increase.
Beyond Social Security, the 2024 COLA also affects federal government retirees. Those under the Civil Service Retirement System (CSRS) receive the same COLA percentage as Social Security beneficiaries. However, retirees under the Federal Employees Retirement System (FERS) have a different COLA calculation, which can result in a lower percentage increase. For 2024, FERS retirees received a 2.2% COLA if the CPI-W was greater than 3%, which is 1% less than the CSRS and Social Security COLA.