There is good news for the many beneficiaries receiving Social Security in the United States. The truth is that, going into next year, they can expect to enjoy an amount of almost $60 per month.
This is mainly due to the result of the annual cost-of-living adjustment (COLA). That statement is based on an estimate by the Senior Citizens League, which is supposed to be one of the largest nonpartisan senior citizen groups in the country.
COLA and how it works
Of course, before we get into more specifics, the first thing we need to do is make sure we know what the COLA is and how it works. Every year, the U.S. Social Security Administration (SSA) revises its monthly payments as a way to prevent inflation from having a negative impact on the purchasing power of Social Security beneficiaries.
Thus, the COLA can be calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It is also compared with that of the third quarter of the previous year with that of the third quarter of the current year.
The increase in Social Security for the coming year
It is also very important for us to know that the COLA increase applies to all recipients of Social Security payments. More specifically, a total of about 70 million people in the United States receive retirement, survivors, disability or Supplemental Security Income (SSI) benefits.
As the estimate carried out by the Senior Citizens League points out, it is expected that, by 2024, the COLA will bring about an increase in payments of 3.2%. For retirees, for example, that figure means that the current average Social Security check of $1,827 per month would increase to $1,885.
However, it is important to note that these are only projected numbers, since the CPI-W for the third quarter of the current year 2023 has not yet been surveyed. For its part, it will be the Bureau of Labor Statistics that will officially announce the COLA for 2024 and it will do so in October.
When the BLS has made public this confirmation of the COLA for next year, it will then be when the increases will begin to take effect in the benefits paid in the month of January.
Here’s how you can calculate your primary insurance amount
There is no doubt when we state that something that most readers of this article will be very interested in is how to calculate the primary insurance amount (PIA). This is the basis for the benefits that Social Security pays to each individual.
Therefore, the formula used to calculate the PIA reflects changes in overall wage levels, as measured by the national average wage index. To make this a little clearer, let’s look at an example that illustrates how retirement benefits are calculated.
The first thing to do is to adjust or “index” the worker’s earnings to reflect the change in overall wage levels that occurred during the worker’s years of employment. This ensures that future benefits reflect the general increase in the standard of living that occurred over his or her working life.
Up to 35 years of earnings are needed to calculate indexed average monthly earnings. After determining the number of years, we choose those with the highest indexed earnings, add the amounts, and divide the total amount by the total number of months in those years. We then round the resulting average amount to the next lowest dollar amount and obtain the AIME.
It is at age 62 that an insured worker becomes eligible for retirement benefits. In the event that 2023 were the eligibility year, one would have to divide the national average wage index for 2021 by the national average wage index for each year prior to it in which the worker had earnings and multiply each ratio by the worker’s earnings.
The result of this would give the indexed earnings for each year before 2021. Instead, we would consider any earnings in 2021 or later at face value, without indexing. We would then calculate the AIME and use this amount to calculate the amount of the worker’s primary insurance for 2023.