So how has Social Security increased benefits in recent history? Well, you already told us what’s on tap for 2025, but I remember some excitement a few years back when they got, what, a 9% increase? Yeah, very close. So historically, it just rides with inflation. It’s supposed to keep up with inflation, but we know that everyday prices that we pay at the grocery store don’t really reflect that. When we look at the numbers, the Jimmy Carter years are good examples where the numbers were double digits. Inflation was really high in the late 70s, so there were three years there where it was really high. It hasn’t been as high since, except for 2023, which came in at 8.7%. That is actually more than the delayed credit in one full year. The delayed credit again is, you know, if you wait until full retirement age and then one year after, from that period of time you’ll have a delayed credit of eight percent added to your benefits. Those are delayed credits, and then of course you get subsequent ones until age 70. So COLA came in at 2023 at 8.7%. The one before that in 2022 was 5.9%, and then historically it fits around the one to two percent area. Sometimes you can look at it as an average of two percent, but it sits between those. That’s where it kind of sees highs. We’ve kind of come down; it rides with the CPI, so it’s come down a little bit.
For 2025, we’ll have 2.5%. In 2024, everyone had a 3.2% increase, so we saw it go up in 2023 and now it’s kind of coming down pretty quickly. Some things that make you look like a rocket scientist, but no, really we did a little bit of this math ahead of time.
So Jason, tell everybody, what was the average monthly benefit for someone starting Social Security back in 2020? So the average back in 2020 was if you were claiming at your full retirement age, and since everybody’s birthdays are different, it would be the age of 66 to 67 roughly in 2020. The average benefit was about $1500. Okay, and so what would it be today? Was that in 2020? What would it be today? So today for 2024, the average benefit if claiming at the full retirement ages of 66 or 67 is going to be $2000. That’s kind of the numbers we used for examples. So that’s, say, a 75% increase if you hadn’t started claiming yet, but let’s say that that you have. Let’s say that you started claiming back in 2020 and the average benefit was—did you say $2000? Yeah, I’ll use for our numbers $2000. Let’s just say monthly benefits were $2000 back in 2020. Well, COLA for that year was 1.6%. Okay, and then today that benefit is what, around? Roughly shy of $2450, it’s just shy, about $2444 would be what today’s benefit is from that.
Okay, so even though that kind of looks like that’s roughly over a 20% increase, and we’re told inflation is up 20% since 2020, it looks as though Social Security has kept up with cost of living just on the surface if we’re using the government numbers. But the reality is that retirees’ income has not kept up. We’re seeing that in our practice, we’re seeing retirees have to draw down more off the money they’ve saved. Most pensions, most people, are not just living off Social Security, and if they are, it’s a really tight budget for them. It looks more and more impossible just to live off Social Security going forward because most pensions don’t get cost of living adjustments. This leaves retirees needing to draw down off their portfolio; if they have an overly conservative approach to investing, not only have they missed out on return during this time, but they have likely hindered their ability to stay ahead of inflation. Market loss and loss of purchasing power caused by inflation can be equally detrimental to the income of retirees.
Do you have anything that you wanted to add to that? Just that it’s very important to have a strategy so you can beat the delayed credits adding to your monthly benefits to maximize your Social Security, and then you have to have assets on the side. I know there’s a lot of people that live just basically on Social Security at that point, and they are very limited in what they can have. It begs the need to have a larger strategy for retirement savings, and then we also have to factor in taxes. Another reason why Social Security numbers can’t be used correctly, even though they’re adding COLA to it, is because the government also taxes it. A portion of that gets taken out. Additionally, a simple answer is that corporations, when you buy your groceries, you are buying at a profit even with inflation as they pass those on to the consumer. That’s why these numbers just don’t align with COLA, so it’s very important to have a good strategy for claiming but also having a larger strategy with supplementing with your assets and retirement savings.
This conversation may totally change after the election, right? I think both Kamala and Trump, I don’t know, I can’t keep up with the rapidly changing minds here, but I think both of them want to eliminate taxation on Social Security, which I think would help lots of people. Lots of people don’t pay taxes already on Social Security, but it would certainly help those people that do pay taxes on Social Security.
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