The rate of inflation in the United States is on the rise and it seems every household is pinching pennies tighter and tighter, especially those counting on income from various sources such as investments when you finally get to retire. With the inflation rate on the rise comes the potential for an increase in your monthly Social Security check to keep up with it in 2018. The official details and decision won’t be decided by the Social Security Administration (SSA) just yet. They need to begin planning to examine how this years inflation rate during the 3rd quarter compares to the previous year before making a final determination. Examining the data obtained during the first quarter, you might find your overall retirement income going up by a little less than 3%.
What Determines Increases?
Increases in Social Security payments are based on inflation data provided by the government through the Bureau of Labor Statistics or BLS. This entity is responsible for tracking how prices for goods in the United States ebb and flow throughout the year. The formula and indexes to do so are complex, but the SSA looks specifically at the monthly consumer price index for urban wage earners and clerical workers(CPI-W) when calculating how much, if at all, to raise payments to recipients. The SSA examines the figures that the BLS reports for the third quarter and compares that average to the prior third quarter. These numbers calculated together determine if your income goes up as a result of an increase in the cost of living adjustment (COLA).
If it’s a bit confusing to factor in how these the change is going to affect your overall savings combined with your investments, think of the previous year. The third quarters of 2014 and 2015 compared did not show that there was an increase in the COLA so payments stayed the same in 2016 as they were in 2015. In 2015 there was a COLA increase, so the SSA looked the figures for the last time a COLA increase occurred, which happened to be 2014, to factor out how the economy impacted payment levels and adjusted payments in 2017 accordingly. The CPI-W between Q3 in 2014 and Q3 in 2016 increased .3%, meaning benefits were increased by that minor amount for 2017.
Reading these numbers might start making your head spin, but basically, if prices are on the rise your benefits are theoretically meant to keep up with them.
How is the cost of living looking like for 2018?
Benefits for SS have been increased in all but three years since 1975 with an average increase of 3.8%, which staggered to a much slower growth of 2.03% from 2005 to 2017. COLA is on the rise for 2018 and current numbers are showing a potential growth with the CPI-W being up by 2.56% in the first quarter when compared to the 1st quarter of the previous year.
Don’t start planning for an increase just yet. Things can change from one quarter to the next and the COLA can increase at a slower rate if inflation rates decrease due to an increase in the federal interest rate. The inflation rates could counteract any increase in benefits with a higher rate for Medicare Part B and D, which could potentially cause your benefit amount to decrease.
You might not be on track when planning your portfolio for when you can finally retire, but knowing how much to expect in payments from the SSA can help you get a better idea of how to supplement your income from putting more into your 401k to expanding your investments across a broad range of options for maximum profit.
Eric and Jennifer Lahaie
JEHM Wealth & Retirement
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