For millions of Americans, Social Security benefits are a critical part of their income, especially for retirees. One key feature of the program is the cost-of-living adjustments (COLAs), which are meant to help people keep up with the rising cost of goods and services over time.
While COLAs usually result in higher benefits each year, they aren’t keeping up with inflation the way they should. This means many retirees are seeing the value of their benefits drop, making it harder to maintain their standard of living.
Here’s why Social Security benefits aren’t keeping pace with inflation, and how much extra money retirees would need to get back on track.
Social Security Benefits Have Lost Value Over Time
Since 2010, the buying power of Social Security benefits has dropped by a shocking 20%, according to the Senior Citizens League, a group that advocates for seniors. This means that the money retirees get now is only worth about $0.80 for every dollar it was worth in 2010.
To make up for this loss, the Senior Citizens League estimates that retirees would need an extra $4,442 per year in benefits. Unfortunately, they believe that unless something big changes in the future, COLAs won’t be enough to close this gap.
For many retirees who don’t have enough savings, this shortfall can be a huge blow. Social Security is often their main income, and without a bigger adjustment, it can become even harder to live comfortably.
Why Are Social Security Benefits Falling Behind?
At first glance, it seems strange that Social Security benefits aren’t keeping up with inflation, especially since COLAs are built into the system to make sure retirees can still buy what they need.
The problem is with how COLAs are calculated. They are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks how much the cost of goods and services is rising for people who work in cities. However, this doesn’t reflect how seniors spend their money.
Seniors typically spend more on things like healthcare and housing, which tend to rise faster than general inflation. But since the CPI-W doesn’t focus enough on these categories, it ends up underestimating the true inflation that retirees experience. This means the COLAs don’t fully help retirees keep up with rising prices.
In the past, lawmakers have suggested using a different consumer price index that tracks the spending habits of older adults. However, with Social Security already facing financial problems, switching to a more accurate index could result in even larger benefits, which could make things worse. So, it’s unlikely to happen anytime soon.
Instead, retirees will have to continue dealing with benefits that lose value over time, and they’ll need to adjust their budgets accordingly.
The $23,760 Social Security Bonus Most Retirees Don’t Know About
If you’re behind on your retirement savings, you’re not alone. However, there are a few little-known Social Security strategies that could help increase your income in retirement. One simple trick could boost your income by $23,760 per year!
Learning how to maximize your Social Security benefits could help you retire with the financial peace of mind you deserve. If you want to know more about these strategies, check out resources like Stock Advisor to learn how to improve your retirement savings.
The Social Security program was designed to help retirees keep up with rising costs, but COLAs are not enough to fully protect seniors from inflation. As a result, retirees are losing more purchasing power each year, which adds to the financial strain many already face.
With the gap between Social Security benefits and the cost of living widening, many seniors will need to find other ways to boost their retirement income, including using little-known strategies to maximize their Social Security.
