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The US government is set to announce an increase in the amount that more than 65 million Social Security beneficiaries will receive each month. Some estimates say that the increase could reach 9%.

No, but it’s probably the largest in 40 years, more than the vast majority of Social Security beneficiaries have received. In 1981, the increase was 11.2%.

January. They are also permanent and they add up. This means that next year’s percentage increase, whatever it ends up being, will tower over the new, larger payments beneficiaries will receive after the last increase.

5.9%, which in itself was the largest in nearly four decades.

Since 2000, it has averaged 2.3% as inflation has remained remarkably subdued due to various economic fluctuations. In some of the most difficult years of this period, a bigger concern for the economy was that inflation was too low.

Since the 2008 financial crisis, the US government has announced three zero increases in Social Security benefits due to very low inflation.

This is the intention. As Americans have painfully noticed over the past year, every $1 doesn’t go as far at the grocery store as it used to.

No. The first American woman to receive a monthly Social Security retirement check, Ida Mae Fuller of Ludlow, Vermont, received the same $22.54 monthly benefit for 10 years.

Automatic annual cost-of-living adjustments did not begin for Social Security until 1975, after a law requiring them was passed in 1972.

It is tied to a measure of inflation called the CPI-W index, which tracks what prices city wage and salary workers pay.

More specifically, the increase is based on how much the CPI-W increases from the summer of one year to the next.

No. People usually pay more attention to a much broader measure of inflation, the CPI-U index, which covers all urban consumers. This covers 93% of the entire US population.

The CPI-W, meanwhile, covers only about 29% of the US population. It has been around longer than the CPI-U, which the government only began to compile after legislation was passed requiring annual welfare increases to be linked to inflation.

Yes, and some critics have argued for years that Social Security should change to a different measure tied specifically to the elderly.

Another experimental index, called the CPI-E, is supposed to better reflect how Americans age 62 and older spend their money. Historically, it has shown a higher rate of inflation for older Americans than the CPI-U or CPI-W, but it hasn’t taken hold. Nor are there any other indicators collected outside the government that hope to show how inflation is affecting older Americans specifically.

To calculate the CPI-E, the government uses the same survey data used to measure the broad CPI-U. But there are relatively few old families in this dataset, which means they may not be the most accurate.

All indices give only a rough idea of ​​what inflation is. But a more pressing issue may be that if the government switched to a different index showing higher inflation for older Americans, Social Security would have to pay out higher benefits.

Using a complex formula that takes into account several factors, including how much the highest-paid worker earned over the 35 years. Generally, those who have earned more money and those who wait longer to start receiving Social Security receive larger benefits, up to a point.

This year, the maximum allowable benefit for those who retired at full retirement age is $3,345 per month.

yes. Everyone gets the same percentage increase, whether they have millions of dollars in retirement savings or are just scrapping.

“COLA doesn’t take into account where you live and your actual spending patterns,” said William Arnon, CEO of the National Academy of Social Security. “For some people, it’s the cost of living in, say, small towns in the Midwest compared to urban areas like New York, D.C. or Chicago. Because many seniors choose to live in the suburbs or rural areas, some benefit more than others of the same stature.

This is great news for each beneficiary and for the businesses around them that could see increased sales.

But it also means the Social Security system pays more, which could increase the strain on its trust fund.

This will put more money into the hands of the people who mostly really need it and are more likely to use it. This would inject more energy into the economy, which could keep inflation at bay.

But the welfare boost will have less of an impact on the economy than past stimulus packages from Washington, the snarl in supply chains caused by global shutdowns or other factors that economists say are behind the worst inflation in decades.

The risk of a recession appears to be rising by the day, but many economists expect inflation to ease as interest rates rise and supply chains improve.

Economists at Deutsche Bank, for example, expect inflation to fall from 8.2% last August to 7.2% in the last three months of this year. In 2023, they see a drop to 3.9% in the second half of the year.