For more than eight decades, Social Security has been providing a financial foundation for many of our nation's retired workers. An estimated 21.7 million people are pulled out of poverty every year because of the monthly benefits they receive from Social Security.
But what's most surprising about America's top retirement program is that average Social Security checks are far more modest than most people probably realize.
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How much is Social Security a month?
Although Social Security benefits are available to workers aged 62 and above who've earned the requisite 40 lifetime work credits, the Social Security Administration (SSA) notes that benefits received are only designed to replace an average of 40% of a workers' pre-retirement earnings. Nevertheless, between 80% and 90% of current retirees consistently rely on their monthly payout to cover at least some portion of their expenses.
According to the latest monthly snapshot from the SSA, the 66.93 million beneficiaries received in the neighborhood of $114.4 billion in payments in October 2023. This works out to an average Social Security check of $1,709.70 right now, or $20,516.40 on an annualized basis.
But there's a pretty wide variance in monthly Social Security checks depending on how you qualify for benefits.
For example, nearly 50 million of the program's recipients are retired-worker beneficiaries, and they accounted for close to 75% of the payouts doled out in October. The average retired worker brought home $1,843.96, or $22,127.52 on an annual run-rate basis.
More than 8.5 million people also receive a monthly disability insurance payment from the SSA. This includes approximately 7.4 million workers who have a qualifying long-term disability. These workers with disabilities are averaging a monthly check of $1,489.47.
Furthermore, Social Security provides financial protection for the survivors of deceased workers, which can include disabled and non-disabled widow(er)s, children, and even widowed mothers and fathers. During the month of October, the roughly 5.8 million survivor beneficiaries took home an average check of $1,454.66.
An above-average inflation rate will provide a meaningful boost to benefits in 2024. US Inflation Rate data by YCharts.
Social Security checks will receive an above-average boost in 2024
However, these average monthly payouts will be receiving a meaningful boost in short order, thanks to Social Security's annual cost-of-living adjustment (COLA).
The program's COLA is a mechanism designed to keep benefits on par with inflation. If the price for commonly purchased goods and services rises, Social Security checks should, in a perfect world, rise by the same percentage to ensure that beneficiaries don't lose purchasing power. COLA is the "raise" passed along most years.
For the past 48 years, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has been Social Security's inflationary tether, and the ultimate determinant of annual COLAs.
Only readings from the third quarter (July September) factor into the COLA calculation. Simply put, if the average CPI-W reading from the third quarter of the current year is higher the average third-quarter CPI-W reading from the previous year, inflation has occurred (i.e., prices have gone up) and beneficiaries are due a bigger monthly check in the upcoming year. The amount of the benefit increase is the year-over-year percentage difference in average third-quarter CPI-W readings, rounded to the nearest tenth of a percent.
In 2024, the program's nearly 67 million beneficiaries will receive a 3.2% cost-of-living adjustment. Though this is well below the 8.7% COLA passed along in 2023, it's still modestly above the 2.6% average COLA over the past 20 years.
The average retired worker is expected to see their monthly check rise by $59 to $1,907, according to estimates by the SSA. Meanwhile, average monthly payouts for workers with disabilities and survivor beneficiaries are on track to climb by $48 and $47, respectively, to $1,537 and $1,505 next year.
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A Social Security dollar simply isn't what it used to be
On paper, beneficiaries would appear to have little to gripe about. A 3.2% cost-of-living adjustment represents a third-consecutive year where monthly payouts are meaningfully increasing (following COLAs of 5.9% and 8.7%, respectively, in 2022 and 2023).
According to a report released in May by The Senior Citizens League, a nonpartisan senior advocacy group, Social Security's COLAs have collectively lagged behind the inflation seniors have contended with since this century began. Whereas total COLAs between January 2000 and February 2023 increased benefits by 78%, the cost of a basket of goods and services purchased by the typical retiree has risen by 141.4% over the same span. Long story short, the purchasing power of a Social Security dollar has declined by 36% since January 2000.
The reason for this decline can be traced to the CPI-W. As its full name shows, the CPI-W is an inflationary index focused on the spending habits of "urban wage earners and clerical workers." These are usually working-age Americans who aren't currently receiving a Social Security benefit.
The problem is that 86% of Social Security's nearly 67 million beneficiaries are aged 62 and above. Seniors spend a disproportionate percentage of their monthly budget on shelter expenses and medical care costs, when compared to the typical worker. Unfortunately, these important expenses aren't being accurately weighted in the CPI-W, which is resulting in this persistent loss of purchasing power. A 3.2% COLA in 2024 isn't going to reverse this more than two-decade trend.
Although Social Security checks are set for an above-average bump in 2024, beneficiaries should take their near-annual "raise" with a grain of salt.
