If you’re one of the 68 million Americans who rely on Social Security, modest cost-of-living increases are coming your way.
On Thursday, the Social Security Administration (SSA) announced that Americans can expect a 1.6% boost in their benefits next year, which would bring the average monthly Social Security check up to $1,503. To estimate your benefits, head over to our Social Security Calculator.
About half of seniors are reliant upon Social Security for at least half their income, while a quarter of seniors depend on it for at least 90% of their income.
Not keeping up
As Mary Johnson, a policy consultant for the Senior Citizens League, told USA Today, “Since low cost-of-living increases (COLAs) have a cumulative effect over time, Social Security benefits are about 17.5% lower today than if inflation had averaged a more typical 3% over the same period.”
Moreover, Medicare Part B premiums are forecasted to rise $8.80 per month, cancelling out a chunk of the increase. It is, however, important to note that Medicare premium increases are typically adjusted in order to avoid reducing Social Security benefits (this is called the “hold harmless” provision).
The index SSA uses to calculate benefits has been scrutinized by retiree advocates because the Consumer Price Index (CPI-W) has vastly reflected price increases for products such as electronics and gasoline.
These advocates say that the SSA should base COLAs on an index focused on the elderly (this would be called CPI-E). With CPI-E, there would be more weight on items that have been more sharply inflated, such as healthcare costs.
Another option would be “chained CPI,” which would result in a lower increase for Social Security recipients. Chained CPI keeps in mind that a good amount of Americans change their spending habits when prices go up by opting for less expensive products rather than pricer items.