Social Security Not Tying Out to my Entry Even Though COLA Equals Inflation
I entered $40,000 for my Social Security payment. Because my COLA rate is equal to my inflation rate, in today's dollars I expected Social Security next year and the years after to be $40,000. But it's slightly less. Why?
The reason for this has to do with Social Security using last year's COLA rate to adjust it for the current year. So let's say it's January and your Social Security statement says your payment this year is $3,333 per month, or $40,000 per year. That payment will not change this year. It will stay the same each month. However, inflation continues each month and therefore the real value of your Social Security payment declines by the inflation rate this year. Put another way, your Social Security payment will decline in today's dollar terms because it will not grow this year at all; it will only increase by COLA again starting next year.