Social Security is a vital income source during retirement, regardless of whether you know it or not. Almost 22 million people out of poverty every year, and close to 90 percent of retired workers rely on their monthly payouts to make ends meet.
There is no announcement more anticipated each year than the cost-of-living adjustment for Social Security.
The image came from the same source as the one above.
Social Security gives more than 65 million beneficiaries a raise every year to account for inflation. "raise" is in quotation marks to show that the benefit hike has nothing to do with helping beneficiaries beat the inflation rate and everything to do with trying to match the inflation rate.
Social Security's inflation measure has been the Consumer Price Index for Urban Wage Earners and Clerical Workers. There are dozens of subcategories, each with their own percentage weights, that make up theCPI-W. When looking at price changes for goods and services, it's easy to compare them month-to-month and year-to-year with the help of these weighted numbers.
There is no time more important than now for social security recipients. The program's COLA calculation only takes into account the third quarter readings from the consumer price index. Social Security's cost of living adjustment will not be affected by the readings from the other nine months of the year.
The average reading from the third quarter of the current year is compared to the average reading from the previous year in order to calculate COLA. If it goes up, Social Security checks will go up by a percentage increase, rounded to the nearest tenth of a percent.
Social Security's cost of living adjustment could go up to a four-decade high. The U.S. inflation rate is reported by YCharts.
July's inflation data was lifted by the Bureau of Labor Statistics last week. The month ended with a figure of 292.219.
One of the biggest increases to Social Security checks in more than four decades can be traced back to the initial JulyCPI-W reading. The July reading is higher than the average for the third quarter of 2021.
The average retired worker's benefit check would have an 8.9% cost-of-living adjustment. Retirees brought home an average of $1,669.44 per month. Younger retirees entering the benefit pool tend to increase the average monthly payouts. By December, the average retired worker should be getting around $1,683 a month.
An 8.9% COLA on top of the third-quarter average of $1,683 would boost monthly benefits for the average retired worker by almost $150 per month, or close to $1,800 per year, in three years' time. I can only imagine that a $150 per month increase in Social Security checks would be welcomed with open arms.
The image came from the same source as the one above.
The biggest increase to Social Security checks in history isn't without consequences. More than 65 million beneficiaries will get a healthy increase in their monthly payouts in 2023, but there are two major obstacles in their way.
Part of Social Security's cost of living adjustment could be eaten up by inflation. COLA is designed to keep Social Security checks on par with inflation. Significant jumps in fuel, food, and shelter costs over the past year, and moving forward, could chip away at most, or all, of the 8.8% COLA that the program is currently pacing for the upcoming year. This isn't the biggest concern.
The purchasing power of Social Security income has fallen since 2000 according to a report by The Senior Citizens League. $100 in Social Security income in 2000 will only buy $60 worth of goods and services in 2022.
The problem with Social Security's cost of living adjustment is that it doesn't account for inflation that seniors are going through. Senior citizens make up the majority of Social Security recipients.
The inflation tether is designed to track the spending habits of wage earner and clerical workers in the city. These are people who aren't getting a Social Security benefit. Senior citizens spend their money in a similar way. Shelter and medical care are underweighted in the CPI-W, while less important costs, such as apparel, education, and transportation, have higher weights.
With no fix to Social Security's COLA calculation on the horizon, retirees are liable to lose purchasing power over time.
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