Are you disappointed with the Social Security increase? The average COLA since 2000 is:

“Nickels aren’t worth a penny anymore.”

Social Security recipients will relate to this quote from Yogi Berra: Benefit payments, including a 3.2% cost-of-living adjustment (COLA), began this month. However, a recent survey conducted by public interest law firm Atticus found that 62% of seniors are dissatisfied with the amount of their Social Security increase.

But if this year’s Social Security increases are disappointing, getting some historical perspective might help at least a little. The average COLA values ​​since 2000 are:

Image source: Getty Images.

2024 Social Security COLA is higher than average

We can easily be swayed by recency bias. There is a tendency to place more emphasis on recent events than is warranted. For example, some retirees may compare the 3.2% COLA announced in October 2023 to the 8.7% increase announced a year ago. By that comparison, the latest boost seems minimal.

But a closer look reveals a very different picture. The chart below shows the annual Social Security COLAs by year published since 2000.

Data source: Social Security Administration. Chart by author.

Of course, the most recent Social Security COLA is much lower than the increases received over the past two years. However, this is higher than the COLA issued in 16 of the 24 years shown in the chart. Please note that there was no It has increased in three of those years. The average COLA during this period was 2.6%, well below the increase that took effect this month.

Why next year’s growth rate may be smaller

I think it will be of little comfort to most people to know that your current COLA exceeds the average increase for the 21st century. If you’re in that group, I have bad news. Next year’s growth rate may be smaller than this.

COLA is based on inflation. And inflation appears to be easing. The Federal Reserve is raising interest rates aggressively in 2022 in an effort to lower inflation. Those efforts seem to be paying off.

Many Americans are also taking notice. The Federal Reserve Bank of New York’s December Consumer Expectations Survey found a significant improvement in respondents’ attitudes toward inflation. Consumers expect the inflation rate to fall to 3% in 2024. The Federal Reserve expects its core personal consumption expenditures price index, its preferred measure of inflation, to fall to 2.4% this year.

However, it is important to note that the Social Security Administration (SSA) calculates the annual COLA using a different inflation measure called the Consumer Price Index for Urban Wage and White Collar Workers (CPI-W). SSA also determines the COLA by comparing the average CPI-W for the third quarter to the average for the third quarter of the previous year.

So we’ll have to wait until October to find out what the next COLA will be. But for what it’s worth, CPI-W has fallen every month since September 2023. If this trend continues, the next COLA will almost certainly be lower than 3.2%.

Good Reasons to Be Disappointed About Social Security COLAs

Am I arguing that we shouldn’t be disappointed about Social Security COLAs? you’re welcome. Although the growth rate is higher than the average over the past 24 years, there are still good reasons to be dissatisfied.

Dissatisfaction with the latest round of Social Security enhancements in the Atticus survey indicates that many seniors feel COLAs are not enough to cover the higher costs they are experiencing. And they have a point. The CPI-W metric that SSA uses to calculate COLA does not reflect the costs borne by seniors. In particular, medical expenses do not account for a large portion.

Unfortunately, this is going to be a problem no matter what the Social Security COLA is. There is a potential solution (replacing the CPI-W with a metric that better reflects the costs of older adults). Perhaps this change will be implemented in the not too distant future. But this reminds me of another quote from Yogi Berra: “The future is not what it used to be.”