The Formula: How Much Will Social Security Benefits Increase In 2018?

Jul. 24, 2017 7:00 AM ETTIP27 Comments
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Tipswatch
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Summary

  • News media widely reported that a 2.2% increase in Social Security benefits is likely in January 2018.
  • How is the COLA determined and how could anyone project it in early July?
  • We need three months of data - inflation for July, August and September - to know the answer.

Update: July Inflation Report Brought Bad News For Social Security Benefits

My wife and I were on vacation last week, eating breakfast at an Interstate hotel in southern Wisconsin. She read me a line from a USA Today story: "Social Security benefits projected to rise 2.2% in 2018."

"What?" I nearly spit out my artificially-processed scrambled eggs. "How can that be? Inflation is running at 1.6% and we're only halfway into the year. Wouldn't this number come out in October or December? How can it be 2.2%?"

The article noted that the 2.2% number was a projection by the Social Security trustees, but that "officials will release the official cost-of-living increase for Social Security recipients in October."

So I realized I had a lot to learn about Social Security and its annual cost of living adjustments (COLAs). My wife and I aren't collecting Social Security yet, but I do track inflation every month. I wanted to know more.

The Weird Index

Social Security COLAs are based on the Consumer Price Index For Urban Wage Earners And Clerical Workers, otherwise known as CPI-W. It is similar to CPI-U (the "headline" inflation that you read about every month) but includes information only from households with at least 50% of the household income coming from clerical or wage-paying jobs.

CPI-W isn't widely tracked, but the Bureau of Labor Statistics does update the index each month in its overall inflation report. In June, for example, the index was set at 238.813, for a 12-month increase of 1.5%, a bit lower than overall U.S. inflation.

I repeat: CPI-W increased 1.5% over the last year, less than overall inflation. Hard to see where we are heading toward a 2.2% benefits increase in 2018, but my research continues ...

The Weird Formula

The Social Security Administration doesn't

This article was written by

Tipswatch profile picture
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I am no longer writing for this site. More details. I will continue to post updates at my site, TipsWatch.com.-----David Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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