A lot has changed in the past 50 years. We now have the internet, cars are beginning to drive themselves, refrigerators can tell you when you're almost out of eggs, and the U.S. has had 10 presidents in that time.
Another change in the past five decades is the amount people receive monthly in Social Security retirement benefits. In 1974, the average monthly payout was $188.21. As of October 2024, the average monthly benefit for a retired worker is $1,924.35.
Although the roughly 922% increase in monthly benefits may seem impressive, it's also necessary given the significant increase in the cost of many items over that time.
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You can thank the cost-of-living adjustment for higher benefits
The Social Security cost-of-living adjustment (COLA) is an annual increase to monthly benefits intended to offset the effects of inflation. Social Security examines the inflation numbers for July, August, and September (Q3) of the current year, compares them to the previous year's numbers, and uses the difference to determine how much to increase benefits.
For example, the average CPI-W (which Social Security uses to measure inflation) for Q3 2024 was 308.729, compared to 301.236 last year. Because of that 2.49% increase, monthly benefits will increase by 2.5% beginning in 2025.
If the CPI-W data from one year is the same or lower than the previous year's, monthly benefits will remain the same. Since automatic COLAs became a thing in 1975, the average annual COLA has been 3.75%.
The good news is that retirees have enjoyed increased benefits in most years. The could-be-better news is that some would argue that the increases haven't kept up with inflation, causing some retirees to lose purchasing power.
As a retiree (or soon-to-be retiree), inflation and COLAs are out of your control. However, the one thing you can control is being proactive about your retirement savings, so you're less reliant on Social Security and can use it as supplemental income. It's easier said than done, but that should be the goal.
