Talk about a power loss.
Retirees would need, on average, a $370 monthly boost in their Social Security checks to make up for a 20% loss of buying power since 2010.
That means today’s average monthly benefit of $1,860 for retired workers would need to rise to about $2,230, according to a new report from the Senior Citizens League, a nonpartisan group.
The spoiler: inflation.
“For every $100 a retired household spent on groceries in 2010, that household can only buy about $80 worth today,” Shannon Benton, executive director of the Senior Citizens League, told Yahoo Finance.
While Social Security benefits get annual cost-of-living adjustments (COLA) based on the Consumer Price Index (CPI) for all urban wage earners and clerical workers (CPI-W), that adjustment hasn't kept pace with the uptick in the costs of items seniors spend on, such as healthcare, smartphones, and housing, according to the data.
The COLA is calculated by averaging inflation data for the third quarter of the year and then comparing that figure with the same data from the prior year. The Social Security Administration is expected to announce the 2025 COLA in mid-October after the release of the September CPI data.
Between 2010 and 2024, Social Security COLAs increased benefits 3.9% per year on average. However, the cost of goods and services purchased by typical retirees jumped by an average of about 4.9% annually over the same period, according to the report.
Benefits 'less likely to match inflation'
The 2024 COLA rose 3.2%, adding more than $50 to the average monthly benefit, according to the Social Security Administration. But common senior household expenses such as car insurance, food, out-patient hospital care, and housing rose much more than that.
“The reality is that COLAs have become less and less likely to match inflation over time,” Benton said. “In the 1990s and 2000s, 60% of COLAs beat inflation. In the 2010s, only 40% did. Through the 2020s so far, only one COLA out of five—the 8.7% increase in 2023— has done so.”
Part of the problem is the index used to calculate COLA doesn’t necessarily reflect typical retirees’ spending, according to Benton.
For example, the formula assumes that consumers spend only 7% of their incomes on healthcare costs, but a majority of seniors in the group’s 2024 Retirement Survey spend as much as 29%.
The problem is that Social Security’s annual increases haven’t always been enough, Benton said. For example, while there was 5.9% COLA bump in 2022, inflation clocked in at 7% in 2021 and 6.5% in 2022, according to the CPI.
Per the report, eight of the last 15 COLAs have failed to beat inflation.
Counterpoint: A 'broader point'
Many economists believe that CPI-W overstates the effect of inflation on household consumption because it does not account for consumers’ ability to change purchasing patterns in response to price increases, said Emerson Sprick, senior economic analyst at the Bipartisan Policy Center,
The CPI-W reflects the cost of a static basket of goods without accounting for the various substitutions that consumers are likely to make as the prices of some goods change more than others, he said.
“For example, if prices rise due to inflation, a consumer may opt to purchase chicken instead of beef, selecting the less expensive option to maintain the same overall purchasing power,” he said.
The larger point here is that it’s dicey to nail down precisely how older Americans spend their money.
“There is a broader difficulty of summarizing the consumption behavior of tens of millions of people in a single index,” Sprick said. “COLAs are actually probably too high because they fail to account for the substitutions folks can make when prices increase.”
'Getting by for now'
Many seniors would beg to differ with that assessment. In the Senior Citizens League’s 2024 Retirement Survey, nearly half of those surveyed said they’re “getting by for now,” but not confident about the future. And more than a quarter reported they are having trouble affording essentials.
For about half of seniors, Social Security provides at least half of their income, and for about 1 in 4 seniors, it accounts for at least 90% of income.
Another rapidly increasing expense for seniors is the average monthly Medicare Part B premium, which has surged from $104.90 in 2014 to $174.70 this year. The annual deductible for all Medicare Part B beneficiaries is $240 this year, up from $226 in 2023.
How much is enough?
Next year’s COLA will likely be lower than 2024’s, according to new estimates, as inflation continues to cool.
Benton predicts Social Security benefits will increase by 2.6% for 2025, on par with the projection from the Congressional Budget Office.
That begs the question once 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 items such as shelter, electricity, hospital, and outpatient medical services — major expenses for millions of seniors — continue to outpace the overall rate of inflation.
“Even if the situation gets better, it's not going to be enough to make up for all these years of loss,” Benton said.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on X @kerryhannon.
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