Oct. 11 is the most important Social Security date of the year

For tens of millions of Americans, Social Security is a financial lifeline that they simply couldn’t do without. Statistics from the Social Security Administration (SSA) show that nearly 62.5 million people received a benefit check in July 2018, of which more than 43 million were retired workers. Of these retirees, over 60 percent were reliant on Social Security to account for at least half of their monthly income, with a third leaning on their checks for virtually all of their income (90 percent plus).

Why Oct. 11 will be so important this year

Because of the elderly’s reliance on Social Security to make ends meet, there’s perhaps no annual event with more importance than the mid-October release of September’s inflation data from the Bureau of Labor Statistics (BLS). According to the BLS, the release of this data will occur on Thursday morning, Oct. 11, which is only 11 days from now.

The reason this date is so important is simple: Social Security’s annual cost-of-living adjustment (COLA) is determined by the inflation readings from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which will be released on Oct. 11. Or in plainer English, the CPI-W, which measures the price movements of a predetermined basket of goods and services on a year-over-year basis, will determine how much of a “raise” (if any) Social Security beneficiaries will receive in the upcoming year. Since seniors are the most reliant group receiving a monthly Social Security payment, by far, it’s easily the most important date (and data release) of the year.

What might surprise a lot of folks is that the SSA, which has had COLA tethered to the CPI-W since 1975, doesn’t take the full year into account when calculating year-over-year inflation. Rather, only the third quarter of the previous year (July through September) and the third quarter of the current year are considered.

More specifically, the average reading from the CPI-W during the third quarter of the previous year serves as the baseline, and the average reading from the current third quarter is the comparison. If the price of goods and services rises year over year, as it’s done in every year since 1975, save for the COLAs in 2010, 2011, and 2016, beneficiaries will receive a raise that’s commensurate with the percentage increase, rounded to the nearest 0.1 percent. If prices were to fall from the previous year, benefits would remain the same. They won’t drop due to deflation.

Social Security is probably looking at its most robust COLA in seven years

What does COLA hold in store for beneficiaries in 2019? While we don’t know that answer with any certainty, it looks like a very strong possibility that it’ll be the highest COLA since 2012. With two of the three important data points in, Social Security is on track for a 2.7 percent increase to benefits in 2019.

However, there’s a wild card in the mix: energy prices. In particular, the damage and disruption caused by hurricane Florence on the East Coast may push crude oil and natural gas prices higher, ultimately buoying the CPI-W. In 2017, hurricanes Harvey and Irma wreaked havoc on the refining and production industry, which led to a notable surge in energy inflation. This resulted in the 2 percent COLA that was passed along this year as opposed to the roughly 1.5 percent COLA that appeared to be on the table prior to both major hurricanes impacting the United States.

What’s also noteworthy about 2019’s COLA, which may have a chance of hitting 3 percent, is that it won’t be impacted nearly as much by the hold-harmless clause. With Medicare Part B premiums expected to be stagnant in 2019, only those folks who aren’t paying the standard monthly rate could see a portion of their COLA gobbled up by Medicare. For a majority of seniors who are already paying this standard monthly rate, it means receiving the entirety of your benefit increase in 2019.

Now, the bad news

However, it’s not all good news, even if it is the highest COLA in seven years. The downside is that the CPI-W continues to do a relatively poor job of taking into account the costs that matter most to seniors. This means there’s a really good chance those who depend the most on Social Security will continue to see the purchasing power of their income decline over time.

An analysis from The Senior Citizens League found that the purchasing power of Social Security dollars has declined by a whopping 34 percent since the year 2000. The reason? The CPI-W is a measure that takes into account the spending habits of urban and clerical workers. These are mostly folks who are of working age and don’t have the same spending habits as seniors. Thusly, medical care and housing, which make up a substantive portion of expenditures for seniors, are given less weighting in the CPI-W in favor of education, apparel, and transportation expenses, which matter less to seniors.

Long story short, as long as the CPI-W remains the program’s inflationary tether, seniors are probably going to struggle to keep up with the rate of inflation, no matter what sort of annual COLA they receive.