There are plenty of important social programs in this country, but none takes the cake like Social Security. Each month, close to 63 million people receives a Social Security benefit check, many of which are senior citizens. For these aged beneficiaries, more than 3 out of 5 rely on their payout for at least half of their monthly income. Ultimately, the guaranteed monthly benefit provided by Social Security to eligible beneficiaries is responsible for keeping an estimated 15.3 million seniors out of poverty.
As we enter the new year, a number of changes will be headed seniors' way. Most notably, they (as well as the long-term disabled and survivors) will be receiving a 2.8% cost-of-living adjustment, or COLA. Think of COLA as the "raise" that Social Security recipients receive each year that accounts for the inflation they've contended with.
Image source: Getty Images.
What will the averaged aged beneficiary take home in the upcoming year?
Although a 2.8% COLA might sound rather ho-hum -- and historically it is -- it's the largest increase in year-over-year benefits since 2012. But what does this mean for the average retired worker? Let's take a closer look.
As of October 2018, the Social Security Administration (SSA) notes that the average retired worker was bringing home $1,419.34 a month, or about $17,032.08 per year. Again, that may not sound like a lot, but the data doesn't lie: It's keeping plenty of elderly Americans out of poverty. Having begun 2018 with the average retired worker taking home $1,406.91 in January 2018, this tells us that payout inflation (i.e., how much the average payout increases between the beginning of the year and the end of the year, based on SSA snapshot data) will likely be about 1.1% in 2018. Thus, the basis of the 2.8% COLA should be from an estimated $1,422.39.
So, what does this mean for the average retired worker? A 2.8% COLA from this estimated monthly benefit would yield an extra $39.83 a month ($1,462.22 a month as a whole), or close to $480 extra a year.
Image source: Getty Images.
An important reminder: You're probably not average
While $480 in extra income probably sounds great considering the shelter (e.g., rent) and medical care inflation that senior citizens have dealt with in recent years, you should also understand that you, nor most people, are "average."
According to the Social Security Administration, the program is designed to replace about 40% of the average retirees' working wages. However, this figure could be higher for low-income individuals and significantly lower for the well-to-do. The point being that the SSA doesn't view Social Security as a primary income source, and neither should you.