Anyone with a memory of 1985 can tell you how much things have changed over the past 40 years: Phones were the size of bricks, listening to music in a car meant carrying cassette tapes, and the movie rental company Blockbuster was just created.

Another thing that’s changed significantly in the past four decades is the average monthly Social Security benefit. In 1985, it was $479 for retired workers, or just over $5,748 annually.

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Today, 40 years later, the average monthly benefit as of January is $1,979, or close to $23,750 annually. That’s over a 313% increase.

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The reason for Social Security benefits increasing

Can you imagine trying to survive off $479 per month with today’s prices? It’s virtually impossible for the vast majority of Americans.

That’s why Social Security has an annual cost-of-living adjustment (COLA) that’s intended to offset inflation (in theory, at least). Does the COLA perfectly match the inflation experienced by seniors and retirees? Nope. Does the COLA help them maintain some of their purchasing power? Absolutely.

The Social Security Administration decides how much to increase benefits each year by looking at CPI-W data, or the Consumer Price Index for Urban Wage Earners and Clerical Workers. It compares the CPI-W reading from the third quarter of the current year to the same period a year ago. Any increase becomes the next COLA. For example, if the CPI-W numbers increase 3% year over year, the next COLA will be 3%.

When to expect a COLA announcement

Third-quarter inflation data, including the CPI-W, is released in October, and the Social Security announces the annual COLA around the same time, so keep an eye out for it if you’re currently receiving or will be receiving Social Security soon.

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