Talk about a loss of power.
Retirees would need, on average, a monthly increase of $370 in their Social Security checks to make up for the 20% loss in purchasing power since 2010.
That means today’s $1,860 monthly benefit for retired workers would need to rise to $2,230, according to a new report from the Senior Citizens League, a non-profit group.
The spoiler: inflation.
“For every $100 a retired family spent on groceries in 2010, that family can buy about $80 today,” Shannon Benton, executive director of the Senior Citizens League, said. told Yahoo Finance.
Although Social Security benefits receive annual cost-of-living adjustments (COLA) based on the Consumer Price Index (CPI) for all urban wage earners and clerical workers (CPI- W), that change was not accompanied by a rise in standards. the cost of things seniors use, such as health care, smartphones and housing, according to the data.
The COLA is calculated by summing up inflation data for the third quarter of the year and comparing that number to the same data for the previous year. The Social Security Administration is expected to announce the 2025 COLA in mid-October after the release of September CPI data.
Between 2010 and 2024, Social Security COLs increased benefits by 3.9% per year on average. However, the cost of goods and services purchased by the average retiree rose by an average of 4.9% annually over the same period, according to the report.
Benefits ‘less to match inflation‘
The 2024 COLA increased by 3.2%, adding more than $50 to the average monthly benefit, according to the Social Security Administration. But common expenses for elderly families such as car insurance, food, hospital care and housing rose even higher.
“The reality is COLAs have become less and less inflation-adjusted over time,” Benton said. “In the 1990s and 2000s, 60 percent of COLAs beat inflation. In the 2010s, only 40% did. From the 2020s to the present, only one in five COLAs—an 8.7% increase in 2023—has done so.”
Part of the problem is the index used to calculate the COLA doesn’t really reflect the average spending of retirees, according to Benton.
For example, the formula assumes that consumers spend only 7% of their income on health care costs, but the majority of adults in the 2024 Retirement Survey cohort spend as much as 29%.
The problem is that Social Security’s annual increases haven’t always been enough, Benton said. For example, despite a 5.9% COLA bump in 2022, inflation reached 7% in 2021 and 6.5% in 2022, according to the CPI.
According to the report, eight of the last 15 COLAs have failed to beat inflation.
Counterpoint: A ‘a broad point‘
Many economists believe that the CPI-W overstates the effect of inflation on household consumption because it does not account for the ability of consumers to change purchasing patterns due to price increases, said Emerson Sprick. , senior economist at the Bipartisan Policy Institute.
The CPI-W shows the cost of a fixed basket of goods without accounting for the differential gains that consumers can make when the prices of some goods change more than others, he said.
“For example, if prices rise due to inflation, a consumer may choose to buy chicken instead of beef, choosing the cheaper option to maintain the same overall purchasing power,” he said. he said.
The big issue here is that it is difficult to accurately determine how older Americans spend their money.
“There is a broad problem in summarizing the behavior of tens of millions of people in one index,” Sprick said. “COLAs are actually too high because they fail to account for the ways people can put in when prices increase.”
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‘Living in the moment‘
Many adults would beg to differ with that assessment. In the 2024 Senior Citizens Retirement Survey, nearly half of respondents said they were “continuing to work for now,” but were not optimistic about the future. And more than a quarter reported having difficulty buying essentials.
For nearly half of adults, Social Security provides at least half of their income, and for about 1 in 4 adults, it accounts for at least 90% of the income.
One of the fastest-growing costs for seniors is the average monthly Medicare Part B premium, which rose from $104.90 in 2014 to $174.70 this year. The annual premium for all Medicare Part B beneficiaries is $240 this year, up from $226 in 2024.
How much is enough?
Next year’s COLA is likely to be lower than in 2024, according to new projections, as inflation continues to recover.
Benton predicts Social Security benefits will increase by 2.6% for 2025, in line with an estimate from the Congressional Budget Office.
That raises the question again: Will it be enough? US consumer prices fell in June for the first time since the early months of the pandemic, bringing the annual rate of inflation to 3%.
However, prices for things like housing, electricity, hospital and outpatient medical services—major expenses for millions of elderly people—continue to outpace the overall rate of inflation. .
“Even if the situation improves, it will not be enough to compensate for the loss of all these years,” said Benton.
Kerry Hannon is a Senior Papers writer at Yahoo Finance. He is a career and retirement expert and the author of 14 books, including “Managing at 50+: How to Succeed in the New World of Work” and “Never Too Old to Be Rich.” Follow him to X @kerryhannon.
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