A Look at the Social Security Payment Schedule

Did you know that Social Security payments land in your bank account on the second, third or fourth Wednesday of the month, depending on your birth date? Or that Social Security’s trustees may be looking at a mammoth cost-of-living adjustment this year? Here’s the scoop.

When I took early retirement, it was nice to have Social Security payments show up in my checking account — but I never could figure out when they would arrive.

I sort of thought the money landed around the middle of the month, but sometimes it arrived later than I expected. And then I’d start to worry whether the Depression-era insurance program had finally run out of money.

I’m not the only one a little confused about the payment schedule. (No tasteless Alzheimer’s jokes, please.)

“I believe it’s around the tenth of the month,” says Andrea Rogers, a retired teacher in Old Greenwich, Conn. “I know it’s not the first, because it never comes in time for people to use it to pay their rent.”

Turns out that both Andrea and I had it wrong.

Depending on your birthday, you receive your Social Security payment on the second, third or fourth Wednesday of the month.[1]

• If you were born between the 1st and 10th, your payment arrives on the second Wednesday of the month.

• If your birthday is between the 11th and 20th, the third Wednesday is payday.

• If you were born on or after the 21st, it’s the fourth Wednesday.

When President Franklin D. Roosevelt signed the Social Security Act into law on Aug. 14, 1935 during the Great Depression, he noted that the “startling industrial changes” of the preceding 100 years had made life more and more insecure. Roosevelt had two goals:[2,3]

• To keep older people out of poverty

• To keep the government from going deeply into debt to make relief payments in hard times.

OK, so maybe he didn’t do so well with that second one. (See 2020, 2021.)

Nevertheless, Social Security remains immensely popular. Neither political party seriously considers doing away with the program. Approximately 65 million people receive Social Security payments, including 50 million retirees and their families.[4]

The amount you receive is based on the total amount you’ve earned in your working life and when you decide to retire. You can start receiving payments as early as age 62, but you’ll get a reduced benefit. If you wait until the full retirement age, 66 to 67, depending on your birth year, you’ll get full benefits.

Social Security began making regular cost-of-living adjustments in the 1970s, when people started getting mad about the bite inflation was taking out of their purchasing power.

Learn more: Smart Money Moves During High Inflation

Every October the government makes a cost-of-living adjustment based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a measure of the average change over time in the prices paid by urban wage earners for a basket of consumer goods and services.[5]

They take the average of the index readings for the third quarter—July, August, and September—and compare it to the average of the third quarter of the prior year.

This year’s 5.9% adjustment was a whopper, historically speaking. It was the biggest in four decades and a huge step up from 2020’s 1.3% increase.[6]

That sure seemed pretty good at the time. CPI-W had risen 5.9% in September, the month prior to the Oct. 13 COLA announcement. But as 2022 progressed, it became clear that 5.9% was falling short of inflation. In fact, as of July 13, 2022, the CPI-W had increased 9.8% over the past 12 months.[7,8]

Here’s how Social Security calculates the cost-of-living adjustment (COLA, for the cool kids), if you don’t mind a little grade-school math.

• Take the average of CPI-W index levels for July, August and September

• Subtract the previous year’s average for those three months

• Divide by the previous year’s average for those three months

• Multiply by 100 and round to the nearest tenth.

In plain arithmetic, the formula for the 2022 COLA:

(3Q average - 3Q prior-year average) / 3Q prior-year average x 100 = x,x%

The thing about using past price increases to calculate a cost-of-living adjustment for the year ahead is that accelerating inflation can leave you in the dust.

So if you suspect that your wallet feels strangely light, even with that 5.9% COLA you got starting in January, you’re onto something. And it’s only natural to start wondering what the next COLA might be.

Just for fun, let’s calculate what COLA would be based on the average CPI-W for April, May, and June 2022. That turns out to be 288.379.

Now we’ll compare that to what the average CPI-W level for the third quarter of 2021, which is what Social Security used to calculate this year’s COLA. That was 268.421.

Plug the numbers into the formula, and the answer is:

Holy cow, a 7.4% increase.

That’s a far cry from the 5.9% you got for all of this year. No wonder you’re feeling a pinch.

Too bad the COLA isn’t calculated every quarter!

Another super-annoying thing about accelerating inflation is that if inflation speeds up in each of the three months in the calculation, the first and second months will drag down the average.

Big ugly rats.

Of course, nobody knows what the average for the third quarter of this year will turn out to be. Maybe inflation will ease. If everybody follows the advice of personal finance experts and starts cutting back on spending, prices will soon come down. You know: supply, demand.

Or not.

The Biden Administration, for example, estimated in March 2022 that inflation would average 4.7% this year. Just three months later, on June 7, Treasury Secretary Janet Yellen told Congress that the administration is working on revising that figure—probably upward.[9]

Further Reading: Preparing for a Recession

An odd thing about the CPI-W is that it is a relic of the American past.

CPI-W dates back to 1913, a very different time in America. In those days, it made sense, at least to the Bureau of Labor Statistics, to focus on the expenditures of urban wage earners and clerical workers. Today, though, wage slaves and clerks account for just 29% of the U.S. population.

In the 1970s, the government decided to broaden CPI to include professionals, the self-employed, the poor, the unemployed and retirees, as well as wage earners and clerical workers. That broad measure is known as CPI-U (U is for urban) or just plain old CPI, and it’s the headline number people use today when they talk about inflation. Today, CPI-U covers 93% of the population.

However, labor unions objected to discontinuing the older index, so the government compromised by calculating both.

Today, the federal government uses CPI-U for most purposes, such as adjusting tax brackets, while CPI-W has mainly been used since 1978 for calculating Social Security COLAs. [10]

That has worked out to retirees’ advantage this year, since CPI-W has been running even hotter than plain vanilla CPI or any other measure used by the government or central bank.

It will be interesting, to say the least, to see how the government responds to potential political pressures from retirees whose clocks are getting cleaned by inflation.

Meanwhile, Social Security keeps arriving on schedule, albeit somewhat diminished in purchasing power.