Social Security’s nearly 64 million beneficiaries won’t want to miss this statement.
On a monthly basis, Social Security divvies out almost 64 million benefit checks, many of which wind up in the hands of retired employees. More than 3 out of 5 of these retired people lean on their benefit to represent at least half of their monthly income, with a minimum of one analysis finding that over 15 million retired workers are taken out of poverty as a direct outcome of this ensured payment. Suffice it to say that Social Security is extremely well our nation’s most valuable social resource.
That’s what makes next week so crucial. On Thursday, Oct. 10, 2019, these nearly 64 million beneficiaries are going to discover simply how big of a “raise” they’ll be receiving next year.
We’re less than a week away from Social Security’s 2020 SODA reveal
Given that 1975, Social Security’s yearly cost-of-living modification (SODA POP) has actually been connected to the Consumer Cost Index for Urban Wage Earners and Clerical Employees (CPI-W). This is an inflationary index with 8 significant costs categories and countless subcategories, all of which have respective weightings and help to measure the inflation or deflation that metropolitan and clerical employees in the U.S. are dealing with. This is why I referred to the boost in pay for recipients as a “raise” (with quote marks), due to the fact that SODA POP is just designed to equal the inflation recipients are dealing with, not assist them get ahead.
On the second Thursday of the month, the U.S. Bureau of Labor Stats (BLS) launches inflationary data from the previous month. That implies on Oct. 10, the BLS will launch the CPI-W reading from September, which is the last puzzle piece required to determine Social Security’s 2020 COLA.
You see, in spite of the BLS reporting inflation information each and every month, Social Security’s COLA is only computed utilizing CPI-W readings from the third quarter (July through September). The other nine months can be beneficial for tracking cost trends in particular categories, but they do not aspect at all into the ultimate SODA passed along to beneficiaries.
In order to determine Social Security’s SODA, the typical CPI-W reading from the third quarter of the current year is compared to the average CPI-W reading from the 3rd quarter of the previous year. If the average reading has risen, it signals year-over-year inflation, in which case recipients will get a “raise” that’s commensurate with the percentage increase, rounded to the nearest 0.1%.
In the uncommon occasion that deflation happens– i.e., the typical reading decreases year over year– advantages would remain fixed from one year to the next. Social Security payouts, thankfully, can’t decline because of deflation.
A smiling senior female holding a cool stack of cash in her outstretched hands.
Social Security’s 2020 SODA will likely be …
So, what does the 2020 COLA have in shop for recipients?
In 2015, the average CPI-W reading in the 3rd quarter was 246.352. However the two-month average for July and August of this year is 250.174. That’s a boost of 3.822 points, or 1.55% from the previous year. Considering that the portion change rounds to the closest tenth of a percent, beneficiaries are looking at a rough boost of about 1.6%. With the average retired worker bringing house $1,473.42 a month, we’re speaking about a raise of less than $24 a month.
Mind you, we still do not have September’s data yet. But what deserves noting is that in 2015’s CPI-W readings increased in each of the important consecutive months. Simply put, August’s reading was greater than July, and September’s was greater than August. In 2019, August’s reading actually dipped from July, which does not always bode well for September.
Perhaps the biggest year-over-year difference can be discovered in energy costs. On the bright side, cyclone devastation has been very little in the United States this year. The downside to that is it’s suggested little oil and oil refining interruption in the Gulf of Mexico and eastern coast ports. A handful of hurricanes led to considerable energy inflation in 2017 and 2018, but the wind has plainly been blurted of the sails in 2019. With energy rates now a drag on total inflation, recipients are most likely looking at a total COLA of 1.5% or 1.6% in 2020, in my finest quote.
A worried senior male holding a mug in his right-hand man and being in front of a stack of clearly labeled expenses on the table in front of him.
Image source: Getty Images.
The loss of purchasing power stays a huge drag for senior citizens
However, as is often the case for elders getting Social Security, no quantity of COLA is going to suffice to permit them to keep up with the true inflation they’re facing. That’s because the CPI-W is inherently flawed.
As I ‘d mentioned earlier, the CPI-W measures the costs routines of metropolitan and clerical employees, which frequently are of working age and aren’t receiving a Social Security payment. More vital, these are folks that have considerably various costs routines than retired workers, which consist of more than 70% of all program beneficiaries.
A December 2011 BLS analysis that compared the CPI-W and Customer Price Index for the Elderly (CPI-E)– a procedure focused on the spending routines of families with individuals aged 62 and over– found that CPI-E medical care costs was double that of the CPI-W, with real estate expenses likewise notably higher. What this suggests is that important expenses to senior citizens, such as treatment and shelter, aren’t being provided enough weight in the CPI-W. Meanwhile, lesser crucial costs, such as education, garments, and transportation, bear more weight.
According to an analysis from The Senior People League, the buying power of Social Security dollars has actually decreased by 33% for elders since 2000. Another method of putting this data is this: What $100 in Social Security earnings purchased in 2000 now only allows retired employees to buy $67 worth of those same items and services. Without reforming how the program’s inflation is determined, senior citizens are accountable to continue receiving insufficient “raises” despite the COLA they receive.