Its average increases have seemingly kept pace with inflation, but they haven’t necessarily kept up quite as well with expenses unique to seniors.
Many people are aware that Social Security’s retirement benefits grow over time. But by how much? Do these increases actually keep up with inflation, as intended?
Here’s how things have changed over the past 60 years.
Then and now
Back in 1964, the average monthly Social Security payment stood at only $77.57. Since then, it’s grown to its current level of $1,920.48 per month for retired workers (not including any payments made to surviving spouses and children of retired workers).
That seems like a massive increase, and in some ways, it is. That’s annualized growth of 5.49% over the 60-year stretch versus 3.93% average annual growth for the Consumer Price Index, or CPI. On a so-called “core basis,” which excludes volatile food and energy prices, the average annual CPI increase was only 3.89%.
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But what about the spending categories most important to retirees?
Many people don’t realize it, but the commonly touted CPI numbers only reflect the average worker’s cost of living. Another index measuring the average elderly U.S. resident’s typical living costs paints a different picture for retirees. Since its inception in late 1982, this CPI measure (known as the CPI-E) has grown at a compound annual rate of 2.99%, while Social Security’s monthly payments have increased by an average of 3.69% per year over the same period.
While cost-of-living adjustments (or COLAs) still outpaced inflation as measured by the CPI-E, the gap was much smaller.
Make additional arrangements
From a retiree’s perspective, there will always seem to be rising prices or extra expenses that aren’t fully reflected in the Social Security Administration’s COLA calculation.
With the small margin between inflation and Social Security COLAs, not to mention the potential for emergencies and other unforeseen expenses, future retirees should recognize that Social Security benefits alone leave no margin for error. You’ll absolutely want to save for retirement on your own, bolstering these benefits when the time comes.