Early Look at 2024 Cost-Of-Living Adjustments and Maximum Contribution Base - InvestingChannel

Early Look at 2024 Cost-Of-Living Adjustments and Maximum Contribution Base

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.3 percent
over the last 12 months
to an index level of 299.394 (1982-84=100). For the month, the index
increased 0.3 percent prior to seasonal adjustment.

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U and is not seasonally adjusted (NSA).

• In 2022, the Q3 average of CPI-W was 291.901.

The 2022 Q3 average was the highest Q3 average, so we only have to compare Q3 this year to last year.

CPI-W and COLA Adjustment Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled is for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 2.3% year-over-year in June, and although this is early – we need the data for July, August and September – my very early guess is COLA will probably be close to 3% this year, the smallest increase since 1.3% in 2021.

Note that CPI-W was slightly negative month-over-month in July and August of 2022, so it is likely there will be a larger year-over-year increase in CPI-W over the next few months than in June, hence my 3% early guess.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one-year lag. The National Average Wage Index is not available for 2022 yet, wages increased solidly in 2022. If wages increased 5% in 2022, then the contribution base next year will increase to around $168,200 in 2024, from the current $160,200.

Remember – this is an early look. What matters is average CPI-W, NSA, for all three months in Q3 (July, August and September).

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