In the middle of next month, Social Security payments are likely to be increased by 8% a year or better. While this is the most significant increase in 40 years, the jump will be entirely eaten up by inflation. Recipients may be worse off than when the cost of living increases were about 2%, in line with the inflation rate up until this year.
[in-text-ad]
The average Social Security recipient will get an increase of $150 a month, or $1,800 yearly. Inflation may rise more than enough to offset this. When gasoline and oil prices are backed out of the consumer price index, the inflation rate for daily purchases is probably over 10%.

The Social Security Administration has created a safety net, primarily for Americans over 62, for decades. Unfortunately, for many recipients, this is all they have to live on. The average Social Security payment is currently under $4,000, before taxes and the costs of Medicare. Medicare payments can run $300 a month, and there is a deductible. On a net basis, a recipient may have less than $2,500. That is barely above the poverty rate for a family of four.

Another byproduct of the increase is that it could accelerate when Social Security runs out of money. Although that is an exaggeration, within a decade, Social Security benefits actually could begin to fall.

Get Our Free Investment Newsletter

I have read, and agree to the Terms of Use

Almost 70 million Americans receive payments from programs operated by the Social Security Administration. For years, there have been worries that the fund would run out of money. Those fears were heightened recently by comments from the trustees of the Social Security and Medicare trust funds, who reported that the Old-Age and Survivors Insurance Trust Fund “will be able to pay scheduled benefits on a timely basis until 2034.” For Americans in their eighties and nineties, this may not be bad news. For younger Americans, it clearly is.

The effects on the economy in the 2030s and beyond could be devastating. Consumer spending is about three-quarters of gross domestic product. This likely will not change much a decade from now. For some older Americans, income may drop to what they can afford for housing and transportation, if that. Discretionary income for millions of these retirees could be little to nothing.

Those effects may begin to happen sooner. The new Social Security increase will be eaten by inflation.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.