Are Social Security Payments Keeping up with the Rising Cost of Living?

How changes in the cost of living compare to social security increases

Social security recipients could be at risk of losing buying power and keeping up with monthly expenses.

Social security benefits and supplemental security income payments have had a yearly cost of living adjustment (COLA) applied since 1975, to keep up with the rising cost of living. However, with prices increasing all around us, is the adjustment enough to support retirees in 2022?

Here at Better Benefits Guide, we wanted to find out how increases in social security benefits over the past ten years have kept up with the rising cost of living in the US. We also wanted to predict what social security benefits could look like in the future, by looking at the average rise in the Consumer Price Index.

The rising cost of living in the US

In the climate of a rising cost of living, everyone’s wallets are being squeezed, but seniors could be feeling the pinch more than most. The average social security payment for those in retirement in 2022 is $1,657, meaning that most retired Americans are receiving around just $19,884 a year.

The Consumer Price Index for all Urban Consumers, also known as the CPI-U is the metric used to determine the annual cost of living adjustment that gets applied to social security benefits payments, to help those in need keep up with rising costs.

COLAs ensure that social security benefits rise enough to cover inflation, and from 2021 to 2022 the average monthly payment rose by $93.

Looking at the CPI-U since 2001, the cost of living for all urban consumers has risen on average by 2.19% per year. The Bureau of Labor Statistics reported that between 2020 and 2021 there was a 4.7% increase in the CPI-U – the highest rise since 1990.

What could social security payments look like by 2030?

In 2001 the average monthly social security payment was $874, while today it is around $1,657. In fact, two years from now the average monthly social security benefit could be more than double what it was in 2001 if payments continue to rise at a similar rate as the CPI-U.

Looking at the annual rise in social security payments since 2001, we found an average increase of 3.08%, compared to the increase in the CPI-U, which has risen by an average rate of 2.19% over the last 20 years.

If social security payments continue to rise in line with increases in the Consumer Price Index, then by 2030 the average monthly check could be $2,112.

The Bureau of Labor Statistics uses two measures to demonstrate the cost of living: the Consumer Price Index for all urban consumers, and the Consumer Price Index for urban wage earners and clerical workers. COLAs are based on the CPI-U, which includes retired people, however, this has been widely criticized.

The CPI-U as a measure of the cost of living for retired recipients of social security benefits could be problematic since it doesn’t accurately reflect the inflated medical costs that most retirees face in the US. Since the CPI-U is based on the average monthly consumption of all urban consumers, the actual medical costs of many social security recipients far exceed those estimated in the CPI-U.

This could help to explain why cost of living adjustments have been rising faster than the Consumer Price Index over the past 20 years, despite many seniors being short on money.

Methodology

We wanted to look at the rise in the Consumer Price Index for all Urban Consumers over the last 20 years, so we sourced information on the average annual increase in the CPI-U from US Inflation Calculator.

We sourced information on the average monthly social security payment for each year since 2001 from Social Security and US News.

We also wanted to find out the average rise in social security benefits over the last 20 years, by calculating the percentage increase in the average monthly social security payment and sourcing information from Social Security.

To predict what the average monthly social security payment could look like in the future, we looked at the average payment since 2001 and calculated the percentage change each year. We then took an average of the annual percentage change since 2001 and applied this to the value of the average social security payment for 2022 and each upcoming year.