How Inflation Is Quietly Eating Into Your Social Security Check This Year

It wasn't a huge improvement. But the 2.8% increase in Social Security payments put in place at the beginning of this year certainly helped plenty of retirees, raising the average monthly payment by $56, from $2,015 to $2,071.

Unfortunately, the benefit of this raise is already gone. The cost of pretty much everything has not only continued to grow this year, but has accelerated from last year's pace.

This reality merits a closer look at how -- and when -- Social Security's annual cost-of-living adjustments (COLAs) are made.

Next year's raise should be good, but your costs are up right now

Even if you don't know the exact number, you're certainly feeling more pain at the gas pump, when you shop for groceries, and if you've recently purchased a new automobile. If you're compelled to quantify this qualitative misery, though, overall consumer costs are up another 3% year to date, according to the Bureau of Labor Statistics, accelerating to a year-over-year (and multiyear high) increase of 3.8% in April. Gasoline, utility bills, and clothing are particularly more expensive, while the cost of healthcare -- which disproportionally impacts Social Security beneficiaries -- has been kept surprisingly in check. Just bear in mind that medical care costs persistently outpaced the growth of other costs between 2022 and last year, and are still uncomfortably high.

Image source: Getty Images.

Relief isn't on the near-term horizon either. That's because Social Security's next round of payment increases won't take effect until the beginning of next year.

It should be another good one, if recent price increases are any indication. Although any given year's cost-of-living adjustment is based on the annualized rate of inflation reported by the BLS for the third calendar quarter of the prior year, it seems unlikely that most of the recent price increases will abate much by then. In other words, don't be surprised if the inflation-driven adjustment to 2027's Social Security payments is somewhere in the ballpark of 3% to 4%.

Just understand that you'll be getting this raise after you've been paying higher prices for up to a full year. If money is already tight, you may be scrimping and saving -- or even borrowing -- just to get by in the meantime while waiting for an adjustment that will still only improve your current benefits payments by roughly $80 per month.

The ultimate goal is not to be in this spot in the first place

The bigger takeaway, of course, is that you'd ideally avoid being in a situation where the timing of your yearly Social Security COLA is of this much concern. This means planning earlier in your career before you retire and buying income-producing assets like dividend stocks and interest-bearing bonds, both of which adjust to factors like inflation in real time.

Sure, both also require you to come up with investable capital that isn't always easy to find. Being an investor means regularly monitoring your portfolio.

It's worth the time and effort, though, just to be able to sidestep the stress that comes from cost-based benefits increases that only materialize after you start feeling the impact of higher prices. Even modest investments can make a huge difference. It's not always easy, but with some forethought, you can leave yourself in a much better position.

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