This has been an incredibly busy and long-awaited month for Social Security recipients.
10. In October, the Bureau of Labor Statistics released inflation data from September, which was the last puzzle piece needed to calculate Social Security's annual cost of living adjustment, or COLA, for 2020. Think of COLA as the "height" that recipients receive from one year to the next are designed to factor the inflation they have faced over the past year. I say "raise" with quotes because it's not exactly an increase, so much as an attempt to keep up with inflation. In other words, social security recipients are unlikely to be ahead.
As announced by the Social Security Administration (SSA), the program's nearly 64 million recipients will see a 1[ads1].6% COLA followed, beginning January. For the average retired worker who brought home $ 1,474.77 a month, as of September, this works out to an increase of around $ 24 a month. It is certainly much better than 2010, 2011 and 2016, when no COLA was brought together, and 2017, when COLA was a meager 0.3%. However, a 1.6% COLA is still well below the rise retired workers have historically been accustomed to receiving.
Beneficiaries in these states will receive the largest increases in social security next year
Furthermore, recipients in increasing their net receipt in 2020 from Social Security will only depend on where they live. Although 1.6% COLA is applied to all 63.79 million traditional social security recipients, the average payout can differ quite dramatically from state to state.
As an example, using data from December 2017 – the most recent state-level published data from the SSA – there was a $ 242 monthly difference in payout between states with the highest and lowest average retirement workers. If a 1.6% COLA is applied to these figures, states that have a higher average payout will be affected more than states with lower average retired worker benefits.
So, which states are in line to benefit most from Social Security's 1.6% COLA? As of December 2017, the monthly payments for the states with the highest average pension benefit to workers were as follows:
- New Jersey: $ 1,553.63
- Connecticut: $ 1,546.67
- Delaware: $ 1,517.11
- New Hampshire: $ 1 498.01
- Michigan: $ 1 493.77
- Maryland: $ 1,482.87
- Washington: $ 1,472.50
- Indiana: $ 1,461.66 York: $ 1,458.19
- Minnesota: $ 1,457.22
Again, these are numbers from the end of 2017, so they are not included in the 2% COLA followed in 2018, 2.8% COLA in 2019, or the upcoming 1.6% COLA in 2020. Still, a number of New England and Eastern states, along with Western standout, should Washington, see the biggest impact from Social Security's COLA.
Now, I know what you're probably wondering: Why is the average national insurance payout higher in these 10 states? The answer is partly logical and partly interpretative.
The most logical explanation I can offer is that workers' average annual income is higher than the national average in most of these 10 states. As a reminder, SSA takes into account the 35 highest-earning, inflation-adjusted years when calculating the monthly payout at full retirement age. While many factors will ultimately determine what you will be paid each month from Social Security, your income history plays a pretty important role.
According to 2017 census data, median household income in Maryland, New Jersey, Connecticut, Massachusetts, and New Hampshire was north of $ 71,300, well above the national average. If employees earn more each year, logically enough, they should receive a higher monthly payment from Social Security when they retire.
A more opaque, yet perfectly appropriate, idea is that some retired workers who earned a healthy wage during their lifetime may choose to move to states with a lower cost of living. In other words, living in the Northeast is great if you want a relatively high wage, but it can be financially debilitating later in life given the high cost of living associated with Eastern and New England-based states. This is probably why states with lower median household income, but also lower living costs, such as Michigan and Indiana, are among those with the highest average monthly pension payments.
A third and final factor, but one that is really impossible to quantify, is the retirement age requirement. As you may be aware, qualified workers can begin to take advantage as early as the age of 62, or at any time thereafter. But there is an incentive to wait, with each year adding about 8% to the payout, starting from 62 years and ending 70 years. Everything is the same (eg work history, earnings history and year of birth), a pensioner waiting for 70 years can provide a 76% higher monthly payment than a person claiming as early as possible (62 years).
While there are a number of factors that can force retired workers to take their benefits early and accept a permanent reduction to their monthly payout, insufficient savings and / or poor health are among the most likely. This suggests that workers in higher income states may be more financially prepared for retirement or possibly better health, and that they may therefore require social security pension benefits later than workers in other states. This later requirement would result in a higher monthly payment.
Understand that living in one of these 10 states does not guarantee you greater COLA impact when you leave. But there certainly seems to be a rhyme and reason why the average paid pensioner is the highest in these states.