There are many wonderful things about Social Security. For example, almost any American worker can easily qualify for it, and you don’t have to save and invest for decades to earn it. (You are simply taxed over your lifetime of earning, thus contributing to the pool of money from which beneficiaries are paid.)
One of the best things about Social Security is that it provides regular cost-of-living adjustments – or “COLAs.” In other words, the benefits you receive generally increase every year to keep up with inflation. Without such increases, if inflation averaged 3% per year over 25 years, a $2,000 benefit would cut purchasing power in half. That would be devastating for someone who relies heavily on it.
Cost of Living Adjustments (COLAs) over the years
Between 1975 and 2023, Social Security COLAs averaged 3.8%. Of course that’s just the average. There were some years with 0% increases (most recently 2015) and some with double-digit increases (1980 and 1981). There has not been an increase of 6% or more since 1983 – except in 2022, when there was an increase of 8.7%.
Here are all the increases in the nearly 50 years between 1975 and 2023:
|
Year |
COLA |
|---|---|
|
1975 |
8% |
|
1976 |
6.4% |
|
1977 |
5.9% |
|
1978 |
6.5% |
|
1979 |
9.9% |
|
1980 |
14.3% |
|
1981 |
11.2% |
|
1982 |
7.4% |
|
1983 |
3.5% |
|
1984 |
3.5% |
|
1985 |
3.1% |
|
1986 |
1.3% |
|
1987 |
4.2% |
|
1988 |
4% |
|
1989 |
4.7% |
|
1990 |
5.4% |
|
1991 |
3.7% |
|
1992 |
3% |
|
1993 |
2.6% |
|
1994 |
2.8% |
|
1995 |
2.6% |
|
1996 |
2.9% |
|
1997 |
2.1% |
|
1998 |
1.3% |
|
1999 |
2.5% |
|
2000 |
3.5% |
|
2001 |
2.6% |
|
2002 |
1.4% |
|
2003 |
2.1% |
|
2004 |
2.7% |
|
2005 |
4.1% |
|
2006 |
3.3% |
|
2007 |
2.3% |
|
2008 |
5.8% |
|
2009 |
0% |
|
2010 |
0% |
|
2011 |
3.6% |
|
2012 |
1.7% |
|
2013 |
1.5% |
|
2014 |
1.7% |
|
2015 |
0% |
|
2016 |
0.3% |
|
2017 |
2% |
|
2018 |
2.8% |
|
2019 |
1.6% |
|
2020 |
1.3% |
|
2021 |
5.9% |
|
2022 |
8.7% |
|
2023 |
3.2% |
Source: Social Security Administration.
What social security benefits can you expect?
The average monthly retirement benefit was just $1,913 in March, which equates to about $23,000 over a year. Unfortunately, that’s not much, but if your income is above average, your benefits will be more than that €23,000.
If you’re retiring in the next decade or two, it’s worth getting an estimate of your future benefits. You can do this by creating a “my Social Security” account on the Social Security website. Then you can review the Social Security Administration’s (SSA) estimates of how much you can collect in the future, based on your earnings history and depending on when you start collecting your Social Security benefits.
Other ways to fight inflation with investments
Consider exploring other inflation-fighting ways to invest for retirement. Here are some of the many possibilities:
-
Dividend-paying stocks: These can be great performers in your portfolio because healthy and growing dividend payers tend to keep pouring cash into your account no matter what the economy does. They will often increase their payouts over time, often faster than inflation. That dividend income is great, too: For example, if you have $400,000 in dividend-paying stocks with an overall average dividend yield of 3%, you’re set to collect $12,000 in dividends annually – and ideally an increase in the share price. also over time.
-
Real Estate Investment Trusts (REITs): REITs are a type of dividend-paying stock where the underlying company owns and rents out many properties. Because rental prices (and property values) often rise with inflation, REITs can be effectively inflation-proof.
-
Annuities: Annuities involve handing over a significant amount of money to an insurance company in exchange for regular payments for a specified period of time or for the rest of your life (and perhaps even for the life of your spouse as well). (Fixed annuities tend to be simpler and less problematic than variable or indexed annuities.) Some annuities allow you to pay extra (or receive less) so that your payments increase by a few percentage points each year. That can help you combat the effects of inflation.
So as you plan for retirement, know that your Social Security income includes inflation adjustments through COLAs and you may be able to set up other inflation-proof income streams as well.
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Here’s the Average Social Security COLA from 1975 to 2023 was originally published by The Motley Fool
