Social Security is arguably the most important social program for seniors. Each month, the Social Security Administration (SSA) divvies out more than 61 million stipends to eligible beneficiaries, of which 42 million are retired workers. Without this income, many of these seniors would likely struggle to make ends meet, especially with SSA data noting that 62 percent rely on Social Security for at least half of their monthly income.
The most important time of the year has arrived for Social Security recipients
Every year, there is perhaps nothing more important for these folks than the annual cost-of-living adjustment (COLA) announcement from the SSA. COLA is nothing more than the inflation-adjusted "raise" that beneficiaries receive from one year to the next.
Social Security's inflationary tether is the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. It takes into account eight major spending categories that cover various goods and services and allows the SSA to determine an appropriate inflationary raise for eligible beneficiaries from one year to the next. When calculating COLA, the SSA averages the CPI-W reading from the third quarter of the previous year (July through September) and compares it to the third-quarter reading from the current year. If the average increases, then beneficiaries receive a commensurate raise that's rounded to the nearest tenth of a percent. If it declines, then benefits remain static from one year to the next.
On Friday, Oct. 13, at 8:30am ET, the Bureau of Labor Statistics (BLS) released its September 2017 inflation data, which was the last piece of the puzzle needed to determine what COLA should be for the upcoming year. Let's take a closer look at what retired workers, the disabled and survivors can expect.
Here's how much your Social Security benefits are set to rise in 2018
As reported by the BLS, the CPI-W increased at a rapid 0.6 percent pace in September, or 2.3 percent on a 12-month, non-seasonally adjusted basis in September. This large increase, like August, was precipitated by hurricanes Harvey and Irma, which pushed energy prices notably higher as refineries and drilling platforms were shut down. Gasoline prices rose 6 percent in August and 13 percent in September, which was the primary reason for the lift in overall inflation rates. While hurricanes aren't good news, in this rare instance they are for Social Security recipients.
With this in mind, let's check the math.
According to SSA data logged from the BLS, here are the CPI-W readings from 2016 in the July through September months:
- July (234.771)
- August (234.904)
- September (235.495)
This works out to an average reading in the third quarter of 2016 of 235.056, and this figure serves as the baseline.
Now let's take a look at SSA logged data for 2017 in July and August, as well as the final piece of the puzzle reported by the BLS for September:
- July (238.617)
- August (239.448)
- September (240.939)
These three readings average out to 239.668 over the third quarter. If we compared the two, the Q3 reading from 2017 increased by 1.96 percent from the baseline, which when rounded works out to a 2 percent aggregate increase. In other words, Social Security benefits are going to rise by 2 percent in 2018. That's the highest increase over the past six years, and a modest bump given the 0 percent COLA received in three of the past eight years.
Here's what a 2 percent COLA means for you
So, what does a 2 percent COLA actually mean for you? Put simply, you'll receive 2 percent more per month in 2018 than you were paid in 2017. According to the August 2017 snapshot from the SSA, the average retired worker was bringing home $1,371.14 a month. Essentially, it means the average retiree can expect around $27 more a month, or about $329 more a year in 2018. That's certainly better than the 0.3 percent COLA increase for 2017.
However, there are two caveats that Social Security beneficiaries need to be aware of.
The first that you should be aware of is Medicare Part B premium costs. If you're already enrolled in Medicare, and you've been protected from high inflation rates in Part B premiums in recent years by the hold harmless, you're probably not going to see all of your 2 percent COLA increase. Instead, part or all of your increase could go toward playing "catch up" on your Part B premiums that are likely still well below the going monthly rate for newly eligible Medicare beneficiaries.
Secondly, it's still highly probable that your COLA of 2 percent isn't going to adequately cover the rising cost of expenses that today's seniors are facing. In 33 of the past 35 years (not counting 2017), Social Security's COLA has been lower than the medical care inflation rate. This is because the CPI-W factors in the expenditures of working-age Americans, whereas seniors tend to spend a considerably higher percentage of their income on healthcare costs. Of late, housing costs, such as rents, have been rising at a quicker pace, too.
Ultimately, a 2 percent COLA is a modest win for seniors and beneficiaries as a whole, but it's nothing to cheer in excess about given the probability that Part B premiums will steal some (or all) of that thunder for about 70 percent of recipients, and the increase may not cover the true inflation that most seniors are dealing with.