For tens of millions of Americans, their monthly Social Security check is a financial lifeline that they couldn't do without. Of the nearly 61.5 million people receiving Social Security each month, 42 million are retired workers -- and of these retired workers, 61% relies on Social Security to comprise at least half of their monthly income.
Because Social Security income is so important to current retirees, and is expected to be relied on heavily by baby boomers, getting as much out of the program as possible is priority No. 1 for most seniors. This means the usual factors apply if you want to maximize what you'll receive each month. This includes working a minimum of 35 years, earning as much as you can in the years you do work, and waiting as long as is financially feasible to claim benefits.
However, there's another important factor that helps dictate Social Security benefits that is beyond our control: the national inflation rate.
The importance of annual cost-of-living adjustments
Social Security beneficiaries usually receive a cost-of-living adjustment, or COLA, every year, which is designed to closely mirror the inflation rate in the United States. The specific tether for Social Security's COLA is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The average reading of the CPI-W from the third quarter (July through September) of the previous year serves as the baseline reading, while the average reading from the third quarter of the current year acts as the comparison. If the predetermined basket of goods and services that's measured by the CPI-W rises from one year to the next, beneficiaries receive a commensurate percentage raise, rounded to the nearest 0.1%. In the case where the CPI-W falls year over year, as happened in 2009, 2010, and 2015, benefits remain static from one year to the next. Social Security benefits aren't reduced if the U.S. experiences deflation.
Recently, the CPI-W has been on the decline, having fallen from an annualized rate of north of 2% early in the year to 1.6%, according to data released by the Bureau of Labor Statistics in August for the month of July. This suggested that while a raise was expected in 2018 for Social Security beneficiaries, it would be smaller than initially expected, which is something that retirees have unfortunately been accustomed to over the past decade.
Because Social Security income is so important to current retirees, and is expected to be relied on heavily by baby boomers, getting as much out of the program as possible is priority No. 1 for most seniors. This means the usual factors apply if you want to maximize what you'll receive each month. This includes working a minimum of 35 years, earning as much as you can in the years you do work, and waiting as long as is financially feasible to claim benefits.
However, there's another important factor that helps dictate Social Security benefits that is beyond our control: the national inflation rate.
The importance of annual cost-of-living adjustments
Social Security beneficiaries usually receive a cost-of-living adjustment, or COLA, every year, which is designed to closely mirror the inflation rate in the United States. The specific tether for Social Security's COLA is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The average reading of the CPI-W from the third quarter (July through September) of the previous year serves as the baseline reading, while the average reading from the third quarter of the current year acts as the comparison. If the predetermined basket of goods and services that's measured by the CPI-W rises from one year to the next, beneficiaries receive a commensurate percentage raise, rounded to the nearest 0.1%. In the case where the CPI-W falls year over year, as happened in 2009, 2010, and 2015, benefits remain static from one year to the next. Social Security benefits aren't reduced if the U.S. experiences deflation.
Recently, the CPI-W has been on the decline, having fallen from an annualized rate of north of 2% early in the year to 1.6%, according to data released by the Bureau of Labor Statistics in August for the month of July. This suggested that while a raise was expected in 2018 for Social Security beneficiaries, it would be smaller than initially expected, which is something that retirees have unfortunately been accustomed to over the past decade.
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