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October 18, 2018
Home USA Social Safety advantages will rise 2.eight p.c in 2019

Social Safety advantages will rise 2.eight p.c in 2019

Social Security benefits will rise 2.8 percent in 2019

Sean Williams, The Motley Idiot
Printed 10:46 a.m. ET Oct. 11, 2018 | Up to date 11:26 a.m. ET Oct. 11, 2018


When you’re planning on relying solely in your social safety examine for retirement, you might need to rethink. Here is why.

Social Safety beneficiaries will web their largest COLA in seven years starting in January.

Social Safety is arguably the nation’s most essential social program, with knowledge displaying that 62 p.c of aged beneficiaries lean on their month-to-month payout to account for a minimum of half of their revenue. Additional, a report from the Middle on Price range and Coverage Priorities finds that 22.1 million folks, together with 15.1 million seniors, are stored out of poverty because of their Social Safety checks.

With this in thoughts, it is solely becoming that crucial occasion of the 12 months for these people is the cost-of-living adjustment (COLA) announcement (i.e., the “increase” the beneficiaries will obtain subsequent 12 months) from the Social Safety Administration (SSA) throughout the second week of October. That announcement simply occurs to be right this moment, October 11.

Understanding how Social Safety’s COLA is calculated

Nonetheless, beneficiaries do not have to attend for the official announcement from the SSA to calculate their Social Safety COLA for 2019. As soon as the Bureau of Labor Statistics (BLS) has launched its September 2018 inflation knowledge, we have now all the knowledge wanted to find out how a lot of a increase Social Safety recipients will obtain subsequent 12 months.

You see, Social Safety’s inflationary tether, the Client Worth Index for City Wage Earners and Clerical Staff (CPI-W), solely takes under consideration three months of inflation knowledge relatively than a full 12 months. The common studying of the CPI-W throughout the third quarter of the earlier 12 months (July by means of September) acts because the baseline determine, whereas the common studying from the third quarter of the present 12 months is the comparability. It takes the BLS a superb week or so to compile all the info for the CPI-W’s essential spending classes and subcategories, which is why the info launch does not come out till the second week of the next month.

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If the common studying from the third quarter of the present 12 months rises from the common CPI-W studying from the earlier 12 months, then beneficiaries obtain a increase that is commensurate with the share enhance, rounded to the closest 0.1 p.c. And will costs fall 12 months over 12 months, as occurred in 2010, 2011, and 2016, advantages stay static from one 12 months to the following.

The excellent news for beneficiaries is that costs most undoubtedly rose on a year-over-year foundation. Let’s dive in to take a exact have a look at how the 2019 Social Safety COLA was decided.

Here is your 2019 Social Safety COLA

We start by laying out the three essential CPI-W readings from the third quarter of 2017 that type the baseline determine.

  • July 2017 CPI-W: 238.617
  • August 2017 CPI-W: 239.448
  • September 2017 CPI-W: 240.939

If these figures are added up and divided by three (since there are three months taken under consideration), then the common CPI-W studying works out to 239.668.

With the discharge of September’s CPI-W knowledge right this moment (October 11), we now have the ultimate piece of the puzzle to determine the comparability determine for 2018.

  • July 2018 CPI-W: 246.155
  • August 2018 CPI-W: 246.336
  • September 2018 CPI-W: 246.565

Like earlier than, if we add these figures up and divide by three, we get a median of 246.352. If we then subtract the common third-quarter studying in Q3 2017 from the common CPI-W studying in Q3 2018, we’re left with 6.684. Divide this determine by the common studying of 239.668 from the third quarter of final 12 months, and we get a 2019 COLA of two.eight p.c when rounded to the closest 0.1 p.c. 

For context, that is the very best annual increase that beneficiaries have acquired in seven years.

Earlier than you get too excited, keep in mind this

After all, Social Safety recipients, or ought to I say extra particularly aged beneficiaries, aren’t going to need to escape the champagne simply but. That is as a result of the CPI-W has a pure flaw, which leads to seniors shedding buying energy over time on their Social Safety revenue.

In accordance with a report from The Senior Residents League, the buying energy of Social Safety {dollars} has declined by an virtually jaw-dropping 34 p.c since 2000. Put one other method, what $100 price of Social Safety advantages may purchase 18 years in the past can now solely purchase $66 price of those self same items. Inflation (i.e., the rising worth of products and companies) has eaten the remainder.

You are in all probability scratching your head and questioning how the CPI-W, which is designed to measure inflation, has allowed Social Safety’s COLA to so vastly underrepresent the inflation that senior residents are going through. The reply lies with the group of oldsters the CPI-W is following.

Because the identify implies, the CPI-W measures the spending habits of city wage earners and clerical employees, who spend their cash very in a different way than seniors do. This ends in considerably extra weight being positioned in spending classes unimportant to aged beneficiaries, like schooling and transportation, whereas crucial bills like medical care and housing do not get as a lot consideration as they need to. Consequently, the buying energy of Social Safety {dollars} stays in fixed decline for the seniors who depend on this system.

In different phrases, seniors ought to undoubtedly relish the truth that they’re on monitor to obtain their largest COLA since 2012, however they’re not going to realize any floor they’ve misplaced on account of inflation since 2000.


The Motley Idiot has a disclosure coverage.

The Motley Idiot is a USA TODAY content material companion providing monetary information, evaluation and commentary designed to assist folks take management of their monetary lives. Its content material is produced independently of USA TODAY.

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Learn or Share this story: https://www.usatoday.com/story/cash/personalfinance/retirement/2018/10/11/cola-social-security-benefits-estimate-2019/38121347/

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