The Average Social Security Retirement Benefit in 2019

A person tightly holding their Social Security card between their thumb and index finger.

There are plenty of important social programs in this country, but none takes the cake like Social Security. Each month, close to 63 million people receives a Social Security benefit check, many of which are senior citizens. For these aged beneficiaries, more than 3 out of 5 rely on their payout for at least half of their monthly income. Ultimately, the guaranteed monthly benefit provided by Social Security to eligible beneficiaries is responsible for keeping an estimated 15.3 million seniors out of poverty .

As we enter the new year, a number of changes will be headed seniors' way. Most notably, they (as well as the long-term disabled and survivors) will be receiving a 2.8% cost-of-living adjustment, or COLA. Think of COLA as the "raise" that Social Security recipients receive each year that accounts for the inflation they've contended with.

What will the averaged aged beneficiary take home in the upcoming year?

Although a 2.8% COLA might sound rather ho-hum -- and historically it is -- it's the largest increase in year-over-year benefits since 2012 . But what does this mean for the average retired worker? Let's take a closer look.

As of October 2018, the Social Security Administration (SSA) notes that the average retired worker was bringing home $1,419.34 a month, or about $17,032.08 per year. Again, that may not sound like a lot, but the data doesn't lie: It's keeping plenty of elderly Americans out of poverty. Having begun 2018 with the average retired worker taking home $1,406.91 in January 2018, this tells us that payout inflation (i.e., how much the average payout increases between the beginning of the year and the end of the year, based on SSA snapshot data) will likely be about 1.1% in 2018. Thus, the basis of the 2.8% COLA should be from an estimated $1,422.39.

So, what does this mean for the average retired worker? A 2.8% COLA from this estimated monthly benefit would yield an extra $39.83 a month ($1,462.22 a month as a whole), or close to $480 extra a year.

An important reminder: You're probably not average

While $480 in extra income probably sounds great considering the shelter (e.g., rent) and medical care inflation that senior citizens have dealt with in recent years, you should also understand that you, nor most people, are "average."

According to the Social Security Administration, the program is designed to replace about 40% of the average retirees' working wages. However, this figure could be higher for low-income individuals and significantly lower for the well-to-do. The point being that the SSA doesn't view Social Security as a primary income source, and neither should you.

Why, you ask? For starters the purchasing power of Social Security dollars has been steadily declining for nearly two decades . An analysis from the Senior Citizens League found that what $100 in Social Security dollars purchased in 2000 would only buy $66 worth of the same goods and services as of January 2018. This purchasing power decline is the result of the program's inflationary tether (the Consumer Price Index for Urban Wage Earners and Clerical Workers) measuring the spending habits of urban and clerical workers rather than the seniors who make up the bulk of beneficiaries. Important expenses like medical care costs and housing tend to get underweighted, thereby leading to an insufficient COLA for aged beneficiaries.

The other problem is that Social Security is itself in a bind. The latest annual report from the Social Security Board of Trustees forecasts that the program's $2.89 trillion in asset reserves will be completely exhausted by 2034. That's because, beginning in 2018, the program will begin expending more than it collects in revenue each year. Ongoing demographic changes will worsen this net cash outflow in 2020, and with each subsequent year. Should the program's excess cash completely disappear, it could lead to an across-the-board benefit cut of up to 21% . If you're too reliant on Social Security, a 21% benefit cut, barring congressional intervention, could really hurt.

And, as the icing on the cake, lawmakers on Capitol Hill can't agree on anything when it comes to fixing Social Security. Though both parties acknowledge the need to protect the program and close its estimated $13.2 trillion deficit between 2034 and 2092, neither party will cede an inch to find common ground with their opposition and make a solution a reality.

In sum, Social Security's COLA is golf clap-worthy in 2019, but there are bigger picture issues that current and future retirees need to be aware of.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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