Social Security benefits are adjusted annually to account for inflation, but questions remain about the adequacy of these adjustments.
The Social Security Administration increases benefits most years in an effort to counteract inflation’s impact. However, the effectiveness of these increases varies according to different perspectives.
The Senior Citizens League contends that beneficiaries have experienced a 20% reduction in purchasing power since 2010. Much of this decrease is attributed to insufficient cost-of-living adjustments (COLAs) following the 2008 financial crisis.
Nevertheless, examining a longer historical context offers additional insights. Since 1975, when annual COLAs were introduced, the average monthly Social Security payment has risen from approximately $207 to $1,976. Though this reflects nearly a tenfold increase, living costs have likewise escalated. In 1975, a dozen eggs and half a gallon of milk each cost about $0.70, the average new home was priced around $40,000, and new cars often sold for less than $5,000.
The key question is whether Social Security benefits have adequately kept pace with inflation. Using data from the Bureau of Labor Statistics’ consumer inflation calculator, the 1975 amount of $207 is equivalent to $1,268 today. This indicates that average Social Security benefits have surpassed inflation over the past 50 years, attributed to COLAs and rising wages.
However, this is not necessarily cause for investors to celebrate, as Social Security was never designed to cover 100% of a retiree’s income. Despite the significant increase in benefits since 1975, they are generally insufficient for comfortable retirement living, reinforcing the importance of individual planning and saving for retirement.
