For the average American, Social Security will be a vital income source during retirement. More than 20 years of annual surveys from national pollster Gallup show that no fewer than 80% of respondents in a given year have relied on their Social Security benefits as a "major" or "minor" source of income.
It's a pretty similar story for future generations of retirees. Over two decades of polling finds that between 76% and 88% of future retirees anticipate needing their Social Security check to cover at least some of their expenses.
Considering the important role Social Security income plays in the financial well-being of our nation's retired workforce, there are few events more anticipated by retirees than the annual cost-of-living adjustment (COLA), which is announced by the Social Security Administration (SSA) during the second week of October.
Image source: Getty Images.
But even though COLAs are universal (on a percentage basis) for the program's nearly 50 million retired workers, nominal-dollar changes to Social Security checks can vary meaningfully by state.
An above-average increase to Social Security checks is on the way
Social Security's COLA is the tool the SSA uses to account for the inflation (increase in prices) beneficiaries have contended with. If, for instance, a commonly purchased basket of goods and services increases in price, Social Security checks should, in a perfect world, rise by the same amount to ensure that beneficiaries don't lose purchasing power.
Before 1975, cost-of-living adjustments were arbitrarily assigned by special sessions of Congress. Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has served as the program's inflationary tether. The more than half-dozen major spending categories, and many subcategories, each of which have their own respective weightings, allow the CPI-W to be chiseled down to a single number each month, which makes for quick and easy year-over-year comparisons.
Social Security's COLA is determined using CPI-W readings from the third quarter (July through September). Though the CPI-W is reported on a monthly basis, the other nine months of the year simply don't factor into the program's COLA calculation. If the average CPI-W reading from Q3 of the current year is higher than the average CPI-W reading from Q3 of the previous year, inflation has occurred and beneficiaries are due a beefier check.
Social Security's cost-of-living adjustment for 2024 clocked in at 3.2%, which is higher than the 2.6% average COLA over the past two decades. For the average retired worker, a 3.2% COLA will increase their monthly benefit by $59 to $1,907 come January.
Average retired worker benefits vary meaningfully by state
But as pointed out earlier, this 3.2% COLA could be more meaningful (in nominal-dollar terms) in some states than in others. Although the average retired worker benefit in December 2022 was $1,825.14 across the country, retired workers in some states were bringing home a check that was nearly $200 per month higher than the national average. Meanwhile, retirees in other states were receiving more than $100 below the national average.
What you see below is a table of average Social Security retired worker benefits in all 50 states, as of December 2022.
| State | Average Retirement Benefit | State | Average Retirement Benefit |
|---|---|---|---|
| Alabama | $1,781.47 | Montana | $1,739.22 |
| Alaska | $1,758.52 | Nebraska | $1,850.33 |
| Arizona | $1,867.46 | Nevada | $1,770.36 |
| Arkansas | $1,718.97 | New Hampshire | $1,994.48 |
| California | $1,787.44 | New Jersey | $2,020.14 |
| Colorado | $1,869.46 | New Mexico | $1,723.77 |
| Connecticut | $2,020.41 | New York | $1,873.83 |
| Delaware | $1,998.21 | North Carolina | $1,828.46 |
| Florida | $1,814.35 | North Dakota | $1,774.50 |
| Georgia | $1,783.25 | Ohio | $1,783.35 |
| Hawaii | $1,824.23 | Oklahoma | $1,781.60 |
| Idaho | $1,800.19 | Oregon | $1,834.40 |
| Illinois | $1,854.84 | Pennsylvania | $1,894.52 |
| Indiana | $1,886.71 | Rhode Island | $1,884.40 |
| Iowa | $1,839.03 | South Carolina | $1,845.99 |
| Kansas | $1,897.60 | South Dakota | $1,766.67 |
| Kentucky | $1,730.48 | Tennessee | $1,810.60 |
| Louisiana | $1,690.27 | Texas | $1,789.11 |
| Maine | $1,734.24 | Utah | $1,900.65 |
| Maryland | $1,960.40 | Vermont | $1,872.78 |
| Massachusetts | $1,910.33 | Virginia | $1,896.15 |
| Michigan | $1,917.84 | Washington | $1,933.04 |
| Minnesota | $1,924.20 | West Virginia | $1,769.54 |
| Mississippi | $1,688.52 | Wisconsin | $1,875.27 |
| Missouri | $1,792.15 | Wyoming | $1,868.84 |
Data source: Social Security Administration, as of December 2022. Table by author.
If you're wondering what catalyst can cause the average retired worker in Mississippi to receive only $1,688.52 per month, while the typical retired worker in Connecticut is bringing home $2,020.41 each month, look no further than earnings history.
There are four factors responsible for influencing monthly Social Security benefits:
- Work history
- Earnings history
- Full retirement age
- Claiming age
The first two of these factors go hand-in-hand. The SSA takes your 35 highest-earning, inflation-adjusted years into account when calculating your monthly payout at full retirement age. The italic emphasis I've added is to denote that workers who consistently earn more during their lifetime have the potential to receive a larger retired worker benefit.
According to data provided by the U.S. Bureau of Labor Statistics, the average salary in the U.S. in 2023 is $59,428. The average annual wages in 17 states are north of $60,000, including Massachusetts ($76,600), Washington ($72,350), New Jersey ($70,890), and Connecticut ($69,130), just to name a few.
By comparison, Mississippi has the lowest average annual wage in the country ($45,180). The variance in Social Security retired worker benefits by state is most logically explained by lifetime differences in average annual earnings.
Image source: Getty Images.
But there's another possibility that may explain this variance in monthly retired worker payouts by state: Relocation. Workers who lived in a state with higher average wages during their lifetime may opt to move to a state with a lower cost of living during retirement.
Every quarter, the Missouri Economic Research and Information Center releases its Composite Cost-of-Living Index on all 50 states. This dataset examines common expenses, such as housing, groceries, utilities, health, and transportation, to gauge how affordable each state is relative to the national average. With a baseline reading of 100, any state with a reading above this figure would be considered costlier than the national average. On the other hand, a reading below 100 represents a state with a below-average cost of living.
In Connecticut and California, the average cost of living was, respectively, 13.9% and 36.4% above the national average during the September-ended quarter. Meanwhile, Michigan sports a cost of living that's 9% below the national average. Workers with higher lifetime earnings can take their beefier monthly Social Security check and move to a state like Michigan to stretch their benefits further. This may explain why Michigan's average retired worker benefit is among the top 10 in the country.
