If you're receiving (or soon will receive) Social Security benefits, you may be aware that the Social Security Administration increases benefits most years to offset the impact of inflation.
Do these annual increases actually achieve their goal, though? It depends on who you ask.
The Senior Citizens League argues that since 2010, the program's beneficiaries have lost 20% of their buying power. The bulk of this shortfall stems from disappointing cost-of-living adjustments (COLAs) immediately following the financial crisis of 2008.
However, a longer time frame provides another useful perspective.
Comparing then and now
To this end, since 1975 -- the year annual COLAs took effect -- the average monthly Social Security payment has grown from around $207 to its current figure of $1,976.
That's nearly a tenfold increase, but back in 1975, eggs cost about $0.70 per dozen, as did half a gallon of milk. The typical cost of a new home was roughly $40,000, while new cars were often selling for less than $5,000.
Both the average benefit and living expenses have increased over time, so the question is, have Social Security benefits kept pace with inflation like they're supposed to?
It appears they have. In fact, using the Bureau of Labor Statistics' consumer inflation calculator, $207 in 1975 is the equivalent of $1,268 today. That means the average Social Security payout has outpaced inflation over the past 50 years, thanks not just to COLAs but also the long-term increase in wages.
It's still not a reason for investors to celebrate, though. Social Security income alone was never intended to make up 100% of a retiree's income. Even after its tenfold increase since 1975, benefits aren't enough for most people to retire on comfortably. You'll still want to plan and save for retirement on your own.
