Skip to content
CRR logo
Submit Search
Join E-mail List | Contact Us
  • Topics
  • Publications
  • Initiatives
  • Data
  • Sponsors
  • Opportunities
  • About Us
  • Search

Social Security’s 3.2% COLA Reflects Cooling Inflation

October 18, 2023
Share
Mobile Share Email Facebook Bluesky Twitter LinkedIn

MarketWatch Blog by Alicia H. Munnell

Headshot of Alicia H. Munnell

Alicia H. Munnell is a columnist for MarketWatch and senior advisor of the Center for Retirement Research at Boston College.

Cost-of-living adjustment makes sure the backbone of our retirement system keeps pace with rising prices.

With the release of the September CPI-W inflation number, the Social Security Administration announced that the COLA for 2024 will be 3.2 percent (see Figure 1).  The adjustment is based on the increase in the CPI-W for the third quarter of 2023 over the third quarter of 2022.  Some bemoan that this year’s COLA is smaller than those in the past few years, but the adjustment is designed to compensate for rising prices, so as inflation drops, the magnitude of the required adjustment also falls.  

Bar graph showing the cost-of-living adjustment (COLA) for OASDI benefits, 1980-2023

Social Security’s COLA does the job it’s meant to do.  The last few years make that point in spades.  The first column of Table 1 shows the December-to-December increase in the CPI-W each year from 2020 through 2022, with an estimate for 2023.  The second column shows the COLAs announced in 2020 through 2023, which take effect in the following year.  In essence, Social Security’s goal is to compensate for the increase in prices of 1.4 percent in 2020 by raising benefits by 1.3 percent in 2021.  When inflation is fairly steady, inflation and the COLA are very close.

Table showing the CPI-W inflation and Social Security COLA, 2020-2023

When inflation takes off, however, the backward-looking nature of the calculation means that – in the short term – the COLA provides less than a full adjustment.  That is, in 2021 prices rose 7.8 percent from January to December, but the COLA announced for 2022 was only 5.9 percent (based on the third quarter of 2021 over the third quarter of 2020).  This discrepancy caused great consternation at the time.  But look what happened in 2022 – inflation slowed to 6.3 percent, but the COLA was much larger at 8.7 percent.  So, COLAs tend to be too small when inflation begins and too large as inflation comes down.  The important point is that, over the whole cycle, Social Security beneficiaries are fully compensated for inflation.  

On a much smaller scale, this year’s COLA looks somewhat low compared to our estimate of the increase in prices for 2023.  But my best guess is that inflation next year may dip below 3 percent and that the Social Security COLA announced next fall will be higher than actual inflation.

Social Security’s COLA is one of the most valuable aspects of the program’s design.  It has always provided invaluable protection.  Even an inflation rate as low as 2 percent cuts the purchasing power of a $1,000 benefit to $600 over a 25-year retirement.  The COLA prevents that erosion.  But the lack of drama means that the COLA goes unappreciated.  The only good thing that may be said about the current inflation spike – which is harmful for all aspects of our lives – is that it has highlighted the value of having retirement benefits that keep up with prices. 

Yield sign on a road with fall foliage that says Social Security COLA increase ahead
Yield sign on a road with fall foliage that says Social Security COLA increase ahead
Downloads
PDF Version
Related Content

Read on MarketWatch

Topics
Social Security
Publication Type
MarketWatch Blog
Related Articles
Yellow coin purse on top of a white calculator on a blue background

How Big Will Social Security’s COLA Be?

MarketWatch Blog by Alicia H. Munnell

July 26, 2023
Photo of the US capitol

Millions to Lose Health Coverage if ACA Tax Credits End

Squared Away Blog by Kimberly Blanton

March 20, 2025
USA social security card overflowing with cash to illustrate budget crisis

Social Security COLA Drops as Inflation Cools

MarketWatch Blog by Alicia H. Munnell

September 20, 2024

Support timely research that informs real-world solutions.

About us
Contact
Join e-mail list
Facebook Bluesky Twitter LinkedIn Instagram YouTube RSS

© 2025 Trustees of Boston College, Center for Retirement Research|Terms of Use|Privacy Policy|Accessibility

This website uses cookies to improve your experience. We also use IP addresses, domain information and other access statistics to administer the site and analyze usage trends. If you prefer to opt out, you can select Update settings. Read our Privacy Policy. Accept
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT