An important aspect of Social Security benefits is the monthly payouts increase they receive in most years to (somewhat) keep up with inflation. This is called the Social Security cost-of-living adjustment (COLA).
Over the past 30 years, Social Security benefits have increased significantly. At the end of 1994, the average monthly Social Security benefit was $697, which worked out to $8,364 for the year.
As of Oct. 2024, a retired worker's average monthly Social Security benefit was $1,924.35, or $23,092.20 annually. This means the average Social Security benefit has increased about 176% over the past 30 years.
How Social Security determines how much to increase monthly benefits
The Social Security Administration (SSA) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine annual COLAs. The CPI-W measures changes in the prices of goods and services, such as housing, groceries, transportation, common household items, and some medical care.
The SSA looks at CPI-W numbers from the third quarter (July, August, and September) of the year, compares it to the year-ago period, and makes any percentage increase the COLA for the upcoming year.
In the event the CPI-W numbers are the same or decreased, monthly benefits will remain the same. There isn't a situation where Social Security reduces monthly benefits because of a drop in the CPI-W readings.
How much would the 1994 average benefit be worth today?
According to the Bureau of Labor Statistics' inflation calculator, $697 in monthly benefits in Dec. 1994 would be worth close to $1,470 today.
This means that someone receiving the average monthly Social Security benefit today has more purchasing power than someone who received the average benefit in 1994.
Of course, whether it feels like someone has more purchasing power will depend a lot on their specific expenses. Some products and services have increased in price faster than general inflation has, which could downplay the perceived increase in purchasing power for those with more spending in those categories.
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