There are lots of wonderful things about Social Security. For example, almost every American worker can qualify for it easily, and you don’t have to save and invest over decades in order to earn it. (You’re simply taxed throughout your earning life, thereby contributing to the pool of funds from which beneficiaries are paid.)
One of the best things about Social Security is that it offers regular cost-of-living adjustments — or “COLAs.” In other words, the benefits that you’re paid are generally increased every year, in order to help them keep up with inflation. Without such increases, if inflation were to average 3% annually over 25 years, a $2,000 benefit would have its purchasing power slashed in half. That would be devastating to someone depending heavily on it.
Cost-of-living adjustments (COLAs) through the years
Between 1975 and 2023, Social Security’s COLAs averaged 3.8%. Of course, that’s just the average. There were some years with 0% increases (most recently, 2015) and some with double-digit increases (1980 and 1981). There has been no increase of 6% or more since 1983 — except for 2022, which featured an 8.7% hike.
Here are all the increases in the nearly 50 years between 1975 and 2023:
| Year | COLA |
|---|---|
| 1975 | 8% |
| 1976 | 6.4% |
| 1977 | 5.9% |
| 1978 | 6.5% |
| 1979 | 9.9% |
| 1980 | 14.3% |
| 1981 | 11.2% |
| 1982 | 7.4% |
| 1983 | 3.5% |
| 1984 | 3.5% |
| 1985 | 3.1% |
| 1986 | 1.3% |
| 1987 | 4.2% |
| 1988 | 4% |
| 1989 | 4.7% |
| 1990 | 5.4% |
| 1991 | 3.7% |
| 1992 | 3% |
| 1993 | 2.6% |
| 1994 | 2.8% |
| 1995 | 2.6% |
| 1996 | 2.9% |
| 1997 | 2.1% |
| 1998 | 1.3% |
| 1999 | 2.5% |
| 2000 | 3.5% |
| 2001 | 2.6% |
| 2002 | 1.4% |
| 2003 | 2.1% |
| 2004 | 2.7% |
| 2005 | 4.1% |
| 2006 | 3.3% |
| 2007 | 2.3% |
| 2008 | 5.8% |
| 2009 | 0% |
| 2010 | 0% |
| 2011 | 3.6% |
| 2012 | 1.7% |
| 2013 | 1.5% |
| 2014 | 1.7% |
| 2015 | 0% |
| 2016 | 0.3% |
| 2017 | 2% |
| 2018 | 2.8% |
| 2019 | 1.6% |
| 2020 | 1.3% |
| 2021 | 5.9% |
| 2022 | 8.7% |
| 2023 | 3.2% |
Source: Social Security Administration.
What Social Security benefits can you expect?
The average monthly Social Security retirement benefit was only $1,913 as of March — amounting to about $23,000 over a year. That’s not a lot, sadly, but if your earnings have been above average, your benefits will be more than that $23,000.
If you’re within a decade or two of retiring, it’s worth getting an estimate of your future benefits. You can do so by setting up a “my Social Security” account at the Social Security website. After that, you’ll be able to see the Social Security Administration’s (SSA’s) estimates of how much you may collect in the future, based on your earnings history and depending on when you start collecting your Social Security benefits.
Other ways to fight inflation with investments
Consider looking into other inflation-fighting ways to invest for retirement. Here are some of the many possibilities:
- Dividend-paying stocks: These can be terrific performers in your portfolio, because healthy and growing dividend payers will tend to keep depositing cash into your account no matter what the economy is doing. They will often boost their payouts over time — often outpacing inflation. That dividend income is wonderful, too: If you have, say, $400,000 in dividend-paying stocks with an overall average dividend yield of 3%, you’re set to collect $12,000 annually in dividends alone — and, ideally, stock price appreciation over time, as well.
- Real estate investment trusts (REITs): REITs are a kind of dividend-paying stock where the underlying company owns and leases out many properties. Since rents (and property values, for that matter) often rise with inflation, REITs can be effectively inflation-resistant.
- Annuities: Annuities involve handing over a significant sum to an insurance company in exchange for regular payments for a certain period or for the rest of your life (and perhaps even your spouse’s life, too). (Fixed annuities tend to be more straightforward and less problematic than variable or indexed ones.) Some annuities will let you pay extra (or receive less) in order to have your payments increase by a few percentage points each year. That can help you fight the effects of inflation.
So as you plan for your retirement, know that your Social Security income features inflation adjustments via its COLAs and that you may be able to set up other inflation-resistant income streams, as well.
