Social Security recipients have enjoyed significant cost-of-living adjustments lately, and it seems that next year might bring even bigger changes. After inflation surged in 2021 and 2022, retirees received adjustments of 5.9% and 8.7% to their monthly payments.
However, since then, the COLA has been trending downward. Last year’s adjustment of 2.8% felt modest compared to what retirees experienced at the start of this decade. Inflation continues to diminish the purchasing power of these payments, and if this trend continues, we could see another substantial adjustment next year.
So, what should you keep in mind?
What to Expect for Next Year’s COLA
Based on the latest inflation data from May, independent analyst Mary Johnson updated her forecast, predicting that next year’s COLA could be around 4.7%. This figure would represent the fourth-largest COLA increase since 1990.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is used to calculate the annual COLA, rose by 4.4% year-over-year in May. However, the Social Security Administration won’t start its calculations until July, so adjustments could change as more information comes in. Johnson noted that there’s a likelihood that her projections could increase as additional data is released.
The COLA is determined by the average year-over-year rise in CPI-W for the third quarter of this year. The official COLA for next year will be announced when September’s inflation data is published in mid-October. Until then, we can only speculate.
Interestingly, Johnson’s forecast differs from the Seniors Alliance, which estimates a 3.8% COLA for next year. The Federal Reserve expects inflation to potentially decrease in June. Johnson’s numbers, thus, stand out from the others.
The primary reason for the differences seems to stem from varying predictions regarding gasoline prices. Oil prices jumped in March following the closure of the Strait of Hormuz due to the Iran conflict. Even though there’s been some progress toward reopening, supply issues could maintain elevated energy prices throughout the summer. How quickly these oil prices decline could significantly influence the COLA for the coming year.
In the interim, Social Security recipients will have to manage with rising costs. It’s important to remember that COLA adjustments are based on past data. Seniors often face higher prices before seeing any increase in their monthly payments. So, while a large COLA next year might seem appealing, slow and steady inflation can actually simplify budgeting and retirement planning over time.
