Social Security benefits and inflation

I get a statement every year regarding my future social security benefits. It now says I should be entitled to $1,500 dollars per month at age 65 (I'm now 40). Will this amount be increased for inflation? (e.g., compounded at 3 percent over 25 years it will be about $3,100 per month). Thanks.

Yes, based on the current social security system, your social security benefits are adjusted for inflation each year. This inflation adjustment is referred to the Cost-Of-Living-Adjustment (COLA). In October of last year, the Social Security Administration (SSA) announced that benefits paid in 2009 would include a COLA of 5.9 percent. This COLA is based on a variation of the Consumer Price Index known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The 2009 COLA of 5.9 percent is the largest in 26 years and should increase the average retiree’s benefits by about $60 dollars per month, according the SSA. During the past 15 years, the social security COLA has averaged about 3 percent per year.

The estimated benefits shown on the social security statement mailed to you each year is in today’s dollars. You can calculate your estimated future benefit by inflating the current benefit by an average inflation rate for each year until retirement. The SSA also has an online benefits calculator that you can use to estimate your benefits in today’s dollars and in future dollars (http://www.ssa.gov/retire2/AnypiaApplet.html).

To learn more about your estimated social security benefits and the statement you receive each year, visit the SSA web site at www.ssa.gov.