Here's how much Social Security checks could increase in 2018

Higher inflation tied to hurricanes likely to pad COLA increase.

  • By Jeffry Bartash,
  • MarketWatch
  • Social Security
  • Social Security
  • Social Security
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

Hurricanes Harvey and Irma caused a lot of hardship, but there may be a silver lining for seniors: The storms could end up giving retirees a few extra dollars in their Social Security checks next year.

Harvey shut down major refineries in the Gulf Coast to force up the price of gasoline. And auto prices rose as many people sought to replace cars and trucks damaged by flooding in Texas and Florida.

By triggering higher inflation in August and September, the storms may have boosted the expected increase in benefits in 2018 by the most in six years. The annual COLA, or cost-of-living adjustment, could be as much as 2% versus the 1.6% to 1.8% increase that seemed likely a few months ago.

How much is that? In 2017, the average beneficiary received $1,360 a month. A 2% increase would amount to $27.20 a month, or $326 for the full year.

Might not sound like much, but it's a lot more than the nation's 42 million retirees got in 2016 or 2015.

In 2016, benefits rose just 0.3%.

And in 2015 seniors got a big, fat zero: no increase at all. It was the third time since 2010 that people on Social Security got no annual increase in benefits.

The slow rise in Social Security benefits is not necessarily a bad thing. Increases are tied to changes in inflation, but inflation has been unusually low since the U.S. exited the Great Recession in 2009.

The annual cost of living increase is merely meant to make sure seniors have the same buying power next year as they did the year before. It's determined by taking the average rate of inflation from July through September and comparing it the same period a year earlier, using an index known as CPI-W.

The problem is, there's some indication the measure used to set annual increases in benefits understates the rise in inflation, at least for seniors. One study by the advocacy group Senior Citizens League contends Social Security benefits only buy about 70% of what they did in 2000.

The reason? Retirees spend a disproportionate amount of money on staples such as health care, including prescription drugs, whose prices have generally risen much faster than inflation. They spend less on items whose prices have constantly decline such as electronics.

For years the Bureau of Economic Analysis has experimented with another index known as the CPI-E meant to more accurately capture how much the cost of living rises for the elderly. The index has shown a somewhat faster increase in inflation for seniors.

Don't expect Congress to adopt the CPI-E formula for Social Security benefits to make them more generous, though.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

For more news you can use to help guide your financial life, visit our Insights page.


Copyright © 2017 Dow Jones & Company, Inc. All Rights Reserved.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.