plenty of important social programs in this country, but none takes the cake
like Social Security. Each month, close to 63 million people receives a Social
Security benefit check, many of which are senior citizens. For these aged
beneficiaries, more than 3 out of 5 rely on their payout for at least half of
their monthly income. Ultimately, the guaranteed monthly benefit provided by
Social Security to eligible beneficiaries is responsible for keeping an estimated 15.3 million seniors out of
As we enter
the new year, a number of changes will be headed seniors' way. Most notably,
they (as well as the long-term disabled and survivors) will be receiving a 2.8%
cost-of-living adjustment, or COLA. Think of COLA as the "raise" that
Social Security recipients receive each year that accounts for the inflation
they've contended with.
the averaged aged beneficiary take home in the upcoming year?
Although a 2.8% COLA might sound rather ho-hum -- and historically it is --
it's the largest increase in year-over-year benefits
since 2012. But what does this mean for the average retired worker?
Let's take a closer look.
As of October 2018, the Social Security Administration (SSA) notes that the
average retired worker was bringing home $1,419.34 a month, or about $17,032.08
per year. Again, that may not sound like a lot, but the data doesn't lie: It's
keeping plenty of elderly Americans out of poverty. Having begun 2018 with the
average retired worker taking home $1,406.91 in January 2018, this tells us
that payout inflation (i.e., how much the average payout increases between the
beginning of the year and the end of the year, based on SSA snapshot data) will
likely be about 1.1% in 2018. Thus, the basis of the 2.8% COLA should be from
an estimated $1,422.39.
So, what does this mean for the average retired worker? A 2.8% COLA from
this estimated monthly benefit would yield an extra $39.83 a month ($1,462.22 a
month as a whole), or close to $480 extra a year.
important reminder: You're probably not average
in extra income probably sounds great considering the shelter (e.g., rent) and
medical care inflation that senior citizens have dealt with in recent years,
you should also understand that you, nor most people, are "average."
to the Social Security Administration, the program is designed to replace about 40% of the average
retirees' working wages. However, this figure could be higher for low-income
individuals and significantly lower for the well-to-do. The point being that
the SSA doesn't view Social Security as a primary income source, and neither
ask? For starters the purchasing power of Social Security dollars has been steadily declining for nearly two decades.
An analysis from the Senior Citizens League found that what $100 in Social
Security dollars purchased in 2000 would only buy $66 worth of the same goods
and services as of January 2018. This purchasing power decline is the result of
the program's inflationary tether (the Consumer Price Index for Urban Wage
Earners and Clerical Workers) measuring the spending habits of urban and
clerical workers rather than the seniors who make up the bulk of beneficiaries.
Important expenses like medical care costs and housing tend to get
underweighted, thereby leading to an insufficient COLA for aged beneficiaries.
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