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A Big Rise for Your 2019 Social Security Benefits Is Almost a Sure Thing

Tens of millions of retirees get Social Security benefits every month, and a substantial fraction of those receiving benefits have to find ways to make ends meet on a fixed income. That's one reason why the cost of living adjustments that Social Security gives recipients every year are so important, because it helps those who rely on Social Security to keep up with their rising living expenses.

At the beginning of 2018, after two years of seeing their benefits stay almost unchanged, Social Security recipients got relatively good news when their monthly payments got a 2% boost. For a while, it's looked as though the increase for 2019 might be even larger, and with the release of the latest data on inflation, it now looks more likely than ever that retirees will get their biggest Social Security increase since 2012.

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What the latest inflation data says about next year's Social Security benefits

Every month, the federal government's Bureau of Labor Statistics releases the latest information on its Consumer Price Index. Market participants were generally pleased to discover that the readings on inflation for the month of August were less extreme than they had seen the previous month. The most-followed measure of inflation, the CPI for urban consumers, rose by 0.2% on a seasonally adjusted basis, lifted by rising costs for housing and energy as prices at the pump again climbed. That brought the total increase in the index for the past 12 months to 2.7%, which was a slightly slower growth rate than the 2.9% year-over-year reading from the previous month.

One source of confusion for Social Security recipients is that the federal government doesn't use the headline inflation number to calculate cost of living adjustments. Instead, it looks at a less-followed inflation index, the CPI for urban wage earners and clerical workers. This index rose just 0.1% on an unadjusted basis in August, after having been mostly unchanged in July.

What this means for next year's Social Security payments

With the August number now available, we have two of three figures that we need in order to calculate what 2019's Social Security increase will be. In order to come up with the exact figure, the Social Security Administration takes the appropriate readings from the months of July, August, and September, and comes up with an average over that three-month period. The SSA then compares that average to the corresponding three-month average inflation reading from the previous year. Whatever percentage change occurs is rounded to the nearest tenth of a percent and determines the cost of living adjustment that takes effect as of January.

Last year's three-month average reading for the CPI was 239.668. When you take the July and August figures this year, you get an average of 246.246, which would work out to an increase of 2.7%. If the inflation number for September is unchanged from August's figure, that's what the 2019 boost is likely to be.

However, there's a decent chance that retirees will get a slightly bigger boost. A rise of 0.1% or more in the inflation numbers would be enough to bring the rounded adjustment figure up to 2.8%. An outsized September gain of 0.3% would get the number to 2.9%, and a really big inflation increase -- like the 0.6% rise that the appropriate CPI measure posted in September 2017 -- could give retirees a 3% raise.

Conversely, a decline in price levels could bring a smaller increase. For instance, if the CPI for urban wage earners and clerical workers were to drop 0.4% in September, then it would be enough to pull the cost of living adjustment down to 2.6%.

Bank on it

Despite the uncertainty in the exact amount, Social Security recipients are almost certain to see an increase in their 2019 Social Security benefits of between 2.5% and 3%. That translates into about $35 to $42 per month in extra benefits for someone getting an average-sized Social Security check of $1,404 this year. Whether that'll be enough to cover your rising costs depends on your specific situation, but for many, the boost will come as welcome relief after several years of little or no increase in their Social Security benefits.

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