A Social Security Increase is Expected for 2018, Along with a Cost-of-Living Increase
The cost-of-living is now the highest that it’s been in the last 6 years. How will this affect retirees?
A cost-of-living adjustment for 2017 was just announced by the Social Security Administration. In December of 2017, Americans who receive Social Security payments should start to see a 2% increase in their check every month. This is great news for millions of retired Americans who depend on their Social Security checks. Many have waited 6 years to see a cost-of-living adjustment increase as big as this one.
On the other hand, 2% is not that high when you compare it to the cost-of-living adjustments of the past. Plus, the cost of Medicare could make the increase virtually unnoticeable. At the same time, older Americans have a lot more expenses each year, which the cost-of-living adjustment increase will not cover.
Now let’s look at how the cost-of-living adjustment is determined and why a 2% increase may not be noticeable to retired Americans. Basically, inflation is what causes cost-of-living adjustments of Social Security. When the cost of services and goods go up, the Social Security payments are supposed to match this increase percentage wise. That way the recipients will have the same purchasing power as they did before.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is what specifically determines the cost-of-living adjustment of Social Security. The CPI-W tracks the costs of various items which working families commonly need. There is also a special Consumer Price Index called CPI-E which tracks the living expenses of retired Americans. However, the CPI-E is not factored into the cost-of-living adjustment to Social Security.
The CPI-E and CPI-W look at expense categories differently from each other. The CPI-E shows that older Americans have to pay double the amount of money for their medical needs as those under the CPI-W. For the last 35 years or so, there has been an average 0.2% increase in CPI-E per year. Experts say that older Americans are continuing to gradually lose their purchasing power and that these yearly adjustments are not going to help anything.
Social Security Cost-of-Living Adjustment History
The cost-of-living adjustment procedure used today has been used since the year 1975. Prior to 1975, legislation determined the increases that Social Security payment recipients would get. There were no formulas to determine it like there are now.
The yearly cost-of-living adjustment has varied throughout the years. Ever since the formulated method of determining the cost-of-living adjustment was put in place in 1975, the highest cost-of-living adjustment so far has been 14.3% which occurred in 1980. The lowest cost-of-living adjustment has been 0% which has occurred 3 times and all within the last 10 years.
Although 3.75% has been the average cost-of-living adjustment of Social Security, this year shows a 2% increase which is more than 50% of the past average.
So, what will retirees have to face?
The average American who receives Social Security payments receives about $1,371 in their monthly check. With a 2% increase, there is $27 more added to this amount which makes the total $1,398.
A lot of retired Americans receive a bigger Social Security payment than the national average. This means their increases will also be bigger as well. The biggest payment that an American of retirement age received in 2017 was approximately $2,687. With a 2% increase, they would have received an additional $54 in their monthly payment. Those who waited longer to claim their Social Security benefits will earn even more money. One person who waited until they were 70 years of age will be receiving $3,538 each month. This means they have a $71 per month cost-of-living adjustment increase waiting for them in December. That will come out to $850 in extra benefits per year.
But is the cost-of-living adjustment for 2017 really a big increase? It may appear that way to a lot of American retirees, especially if they get paid $1,400 each month because that will give them an additional $28 for each payment. Unfortunately, the premiums of Medicare Part B are also increasing which means that 2% increase won’t really be noticeable. That extra money will just go right toward paying the additional premium amounts for Medicare. Of course, this won’t be for certain until the premium amounts of 2018 are officially announced to the public.
Since inflation for retirees rises faster than the CPI-W increase, seniors may not see the cost-of-living adjustment of Social Security this year as anything more for them in their payments.