In 2019 Social Security recipients will get a 2.8 percent raise.
This is the largest increase in seven years and the second largest in the last 10. Retirees inside the CALPERS and CALSTRS pensions will also get an increase, but they are calculated differently.
Since 1975 Social Security benefits have been set to increase with the Consumer Price Index (CPI), before then increases were set by legislation.
Consumer Price Index is a measure of inflation and deflation. CPI monitors the price changes of a basket of consumer goods and services and is calculated monthly by the Bureau of Labor Statistics.
There are arguments against using CPI in its current form, and I tend to agree.
There are many items used in CPI that are either not applicable or unlikely to be relevant to retirees.
It would be helpful to seniors if they calculated social security increases by measuring only items that are more pertinent to retirees.
Despite this being the largest increase in seven years, many recipients may find little solace. Recent Social Security increases haven’t amounted to much.
In the last ten years, there have been three years with no increase at all and another year with only a .3 percent increase.
The other six years in that span haven’t amounted to much, making the 10-year average 1.36 percent increase.
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Things weren’t always like this. Shortly after Congress indexed adjustments to CPI, America passed through a period of runaway inflation. Those who financed homes or invested in CDs likely experienced interest rates in the teens.
From 1975 to 1982 Social Security increased an average of 8.7 percent per year.
The largest increase was 14.3 percent in 1980. I’m sure Social Security Recipients would love to have a jump like that, but they probably wouldn’t like the consequences that come with runaway inflation.
Many Californians are not in the Social Security system. There is a significant amount of the population in the CALPERS and CalSTRS pension systems. These are pensions for California government employees and teachers.
CALPERS benefits increase similar to Social Security. Each employer who pays into CALPERS can negotiate their own cost of living adjustments so we can’t say that the pensions increase equally to all recipients, but it usually is a formula similar to CPI.
CalSTRS is a little different.
Rather than CPI-based increases, CALSTRS recipients get a flat 2 percent increase. This increase is based on the original pension benefit at the start of retirement and does not compound.
Retirees need to be aware of how their retirement income increases. They need to monitor these increases and compare these numbers to their spending habits. The long-term effect of even small changes is enormous.
Inflation and poor budgeting can be silent retirement killers.
These items are often ignored at peril because they happen slowly over long periods, but their effects are often worse than a lousy economy.