I won't keep you in suspense: Social Security checks will be 2.8% bigger in 2019. That's great news for retirees, but there are some important things every Social Security recipient needs to consider about the increase. These include the fact that some retirees might not see the full amount of the increase reflected in their checks, and the cause of the increase could indicate that retirees don't make any real progress toward financial security in spite of the bump-up in income.
How Social Security determines annual increases
Every year, Social Security's number-crunchers evaluate the annual change in prices for a variety of goods and services using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). An inflation measure, the CPI-W is designed to represent the cost of living for the typical American employee.
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Specifically, Social Security compares the CPI-W monthly readings for the third quarter with the third-quarter reading from the last year in which a Social Security increase was awarded. If the CPI-W is higher than it was in that previous period, then Social Security recipients get an increase equal to the percentage change in the index. This is referred to as a cost of living adjustment (COLA). If the CPI-W is lower than it was in the preceding period, then Social Security income remains unchanged from the prior year.
For example, the average CPI-W in the third quarter of 2017 was 2% higher than the CPI-W in the third quarter of 2016 (the last year a COLA was granted), so Social Security recipients got a 2% boost to their income this year.
This year, the CPI-W increased even more. As you can see in the following table, the average reading in Q3 2018 was 2.8% above the average reading in Q3 2017, so Social Security recipients will get a 2.8% increase beginning in January.
| Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) | |||||
|---|---|---|---|---|---|
| Year | Jul | Aug | Sep | Average | % YoY Change |
| 2017 | 238.617 | 239.448 | 240.939 | 239.668 | |
| 2018 | 246.155 | 246.336 | 246.565 | 246.352 | 2.8% |
Data source: Social Security Administration.
Don't get too excited yet
The increase is important because Social Security accounts for over 50% of retirement income for roughly half of all married couples. However, while the 2.8% COLA increase in Social Security is the largest awarded since 2011, it won't add all that much money to the average recipients' annual income.
As of August 2018, Social Security's monthly statistical snapshot shows that the average retired worker is collecting $1,415.94 in monthly payments. This means that typical retirees will see their monthly check climb by only $39.64 and their annual haul increase by $475.76. Don't get me wrong, no one's going to complain about an extra $500 every year. But that's far from a life-changing increase.