The mere mention of Social Security elicits an emotional response from every American. There are some groups who are worried about how long it will be around, and others who are worried about if they have enough of it right now. For the second group, good news is in order for 2018, as there will be a slight increase to Social Security benefits next year.
The increase, announced last week, is set for 2 percent in 2018. This may seem like a small amount, but it is the largest increase that Social Security has seen since 2012. This boost will average about $25 per month for most beneficiaries, and is listed a cost of living adjustment, sometimes referred to as COLA.
The increase is going to impact more than 70 million American citizens. The group that is impacted includes those who receive Social Security benefits, federal retirees, and disabled veterans. These millions equate to about every 1 in 5 Americans.
The cost of living increase is based on the measure that the Bureau of Labor Statistics completed of consumer prices. This is something that is currently dictated by law, but there are many people who say that this inflation measure does not do justice for seniors who see a larger increase in prices for many things including healthcare.
Barbara Bogart, a 75-year-old retiree who gets less than $1,000 per month from her Social Security benefits as her only source of income said, “It doesn’t make your life any easier. It’s really made it tight. You have to be so careful to make it each month. I have all the normal costs that people have. I have groceries (and) gas for my car. I have to be cautious.”
On the other end, there are conservatives who say that the inflation index that is used is often too generous. This is, in part, because when the prices go up for an item, many people will change what they buy for something less expensive. Currently, the average Social Security pay out each year per individual is around $15,000 per year, or $1,258 per month.
According to Max Gulker, who works at the American Institute for Economic Research as a senior research fellow, prices for consumer goods have only gone up slightly over the past year. This is really good for inflation, because there were factors that could have caused a major spike such as higher gasoline prices after hurricanes on the Gulf Coast.
“For the most part, there was a decline in energy prices for a lot of the year but at the end of the year we saw that uptick in gas from the hurricanes,” he said.
On average, over the past 8 years, the cost of living increase has been a little over 1 percent and the decade before that, it was an average of 3 percent every year. Since 1975, there has been an automatic annual increase for Social Security thanks to a Congressional mandate. While presidents can often get blamed for low increases, they actually have no say in the matter unless they can convince Congress to change the law. Because of this, President Donald Trump cannot be blamed for a lower increase even if there is an attempt.
According to Mary Johnson of The Senior Citizens League, having very small or no increase every year really does have an impact over the course of the lives of these retirees.
“Think about the length of a retirement period,” she said. “Eight years is about a third of a (healthy) retirement. It’s squeezing them. It’s causing them to dip into savings more quickly. The lifetime income that they were counting on just isn’t there.”
While many different factors are taken into account to determine the cost of living increase over the course of the year, some outlying goods and services have become more expensive than last year by a substantial amount. According to AAA, gas prices have increased by 10 percent from last year, even though they are now going down again. Housing prices have increased by 2.8 percent. Medical care has increased by 1.5 percent. The cost of food and drinks has also gone up 1.2 percent. In order to determine the actual increase, all of these increases based on sector are brought together and create the average.
Regards,
Ethan Warrick
Editor
Wealth Authority