A lot has changed in the past 20 years. In 2005, Netflix was still mailing out DVDs, MySpace was the most popular social media platform, and many phone plans still charged per text sent or received.
Another thing that’s changed in the past two decades is the average monthly Social Security benefit. In 2005, it was $1,002, or just over $12,000 annually.
Fast-forward 20 years, and the average monthly benefit as of January of this year is $1,979, or close to $23,750 annually. That’s over a 97% increase.
Image source: Getty Images.
Why have Social Security benefits increased over the years?
Inflation is easy to notice for anyone responsible for buying groceries, paying rent, or filling up their gas tanks. Now, imagine if prices kept rising, yet Social Security benefits stayed the same. Retirees would lose a large chunk of their purchasing power, and many would have their livelihoods threatened.
Luckily, Social Security has an annual cost-of-living adjustment (COLA) to help retirees maintain some of their purchasing power. The COLA may not keep up with inflation perfectly each year, but any bit helps.
To determine how much to increase benefits each year, Social Security compares inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the previous year’s third quarter to the current year’s third quarter.
However much the CPI-W increases is how much monthly benefits are increased. If the CPI-W data decreases or remains the same, monthly benefits remain the same.
The current COLA system is far from perfect, but it has been how Social Security has functioned for the past 50 years.
