A lot has changed since 1965. Cellphones didn't exist, gas was around $0.30 per gallon, and the federal minimum wage was $1.25 an hour. Aside from inventions, price changes, and major cultural shifts, Social Security has also had its fair share of changes, including the average monthly benefit.
The average Social Security retired worker's monthly benefit in 1965 was $83.92. Today, the average has jumped to $1,929.20 as of the end of January -- close to a 2,200% increase.
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What causes Social Security benefits to increase?
A trip to your local grocery store will show how much prices have increased, even within the past few years. Now, imagine how different prices are compared to 60 years ago, because of inflation.
Social Security's annual cost-of-living adjustment (COLA) is meant to offset some of the effects of inflation. It's far from perfect, but the idea is that increasing benefits alongside inflation will help recipients keep most of the purchasing power of their benefits.
Can you imagine retirees trying to survive in 2025 with $84 in monthly benefits? That's barely enough for a family to go to a movie and get popcorn and drinks nowadays.
How is the COLA decided each year?
Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine how much to increase monthly benefits. It's a metric that measures the change in expenses for categories like housing, groceries, transportation, and some medical care.
The program compares CPI-W data from the current year's third quarter to the previous year's data and adjusts monthly benefits accordingly. If the CPI-W increases, monthly benefits increase by the same percentage. If the CPI-W decreases or remains the same, monthly benefits remain the same.
There has been pushback against using CPI-W to determine the COLA because it excludes some expenses retirees face disproportionately. But Social Security has been using it for 50 years, and there are no signs of it changing anytime soon.
