Social Security will be a crucial source of income for the typical American after they retire. Over two decades of yearly surveys conducted by national pollster Gallup reveal that in any given year, no less than 80% of respondents considered the benefits they receive from Social Security to be their “major” or “minor” reason for income.
Annual Social Security COLA
For retirees in later generations, the narrative is much the same. According to surveys conducted over 20 years, 76% to 88% of future pensioners believe they will require their Social Security benefit to help with at least a few of their living expenditures. The annual COLA, which is released by the SSA in the second week of October, is one of the few events that retirees look forward to the most because of the significant role that Social Security revenue plays in the financial security of our country’s retired workforce.
Increase In Social Security Checks
The method the SSA employs to take into consideration the inflation (rise in prices) that beneficiaries have faced is Social Security’s COLA. In an ideal world, Social Security checks would grow by the same amount if, for example, the cost of a frequently bought basket of goods and services rises, to guarantee that recipients don’t lose buying power. Cost-of-living adjustments were determined arbitrarily by special sessions of Congress before 1975. The CPI-W has been the program’s inflation tether since 1975. Every month, the CPI-W may be reduced to a single figure thanks to the more than six main spending categories and numerous subcategories, all of which have unique weightings. This facilitates rapid and simple year-over-year comparisons.
Assessment Of Social Security COLA
The 3rd quarter (July through September) CPI-W figures are used to calculate Social Security’s COLA. Even though the CPI-W is released monthly, the program’s computation of COLA ignores the data from the remaining nine months of the year. Inflation has occurred and recipients are entitled to a larger check if the mean CPI-W reading from Q3 of this year is greater than the typical CPI-W reading from Q3 of last year. The cost-of-living adjustment (COLA) for Social Security in 2024 was 3.2%, higher than the average COLA of 2.6% for the previous 20 years. In January, a 3.2% COLA will raise the average retired worker’s monthly payment from $1,907 to $1,59.
The Social Security Administration (SSA) determines your monthly payout at full retirement age by factoring in your 35 highest-earning, inflation-adjusted years. The U.S. Bureau of Labor Statistics reports that in 2023, the average wage in the country will be $59,428. Of the states with average yearly incomes above $60,000, some are Massachusetts ($76,600), Washington ($72,350), New Jersey ($70,890), and Connecticut ($69,130). Mississippi, on the other hand, has the lowest average yearly salary in the nation ($45,180). Differences in average yearly wages throughout a lifetime theoretically account for the majority of the variation in Social Security retired worker payments by state.
Relocation, however, is an additional factor that could account for this variation in monthly benefits for retired workers by state. Employees who have spent their working lives in a state with a higher average income may decide to retire and move to a state having a lower cost of living. The Missouri Economic Research and Information Center publishes its Composite Cost-of-Living Index for each of the 50 states every quarter. The purpose of this dataset is to determine how economical each state is in comparison to the national average by looking at basic expenses like housing, groceries, utilities, health care, and transportation.
Any state with a reading above the national average would be seen to be more expensive than the others, with a baseline reading of 100. A reading below 100, on the other hand, indicates that a state has a lower-than-average cost of living. The average cost of living in Connecticut and California at the end of September was 13.9% and 36.4% more than the national average, respectively. Michigan, meantime, has a cost of living that is 9% lower than the national average. Higher earners during their lifetime can take their larger monthly Social Security check and relocate to a state such as Michigan to extend their benefits. This could be the reason why Michigan has one of the highest average retirement worker benefits in the nation.