Bad news for millions of seniors in America: Social Security payment COLA lags inflation
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| For the last 50 years, SS COLA has consistently lagged Year over Year CPI-U change since 1984, by an average of 1.44% , with largest gap in last 3 years. |
Bad news for millions of seniors in America: $400 cut in Social Security payments each month
Summary
1. Social Security Cost-of-Living Adjustment (COLA):
- The COLA for 2024 is set at 3.2%, affecting over 71 million Americans.
- The 2025 COLA is projected to be lower, around 2.57%.
2. Concerns about COLA adequacy:
- The Senior Citizens League reports that Social Security COLAs have consistently lagged behind inflation by an average of 1.44% since 1983.
- This lag has resulted in a potential loss of purchasing power for seniors, estimated at nearly $400 per month.
3. Impact on seniors:
- Many seniors are struggling to make ends meet due to rising costs, especially in healthcare, prescription drugs, and housing.
- 71% of seniors surveyed are concerned about depleting their savings due to high inflation.
- 78% reported higher monthly budgets for essentials compared to the previous year.
4. COLA calculation and criticism:
- The current COLA is based on the Consumer Price Index for Urban Wage Earners (CPI-W).
- Critics argue this doesn't accurately reflect the inflation rate experienced by seniors.
- 75% of surveyed seniors want COLAs to be based on the Consumer Price Index for the Elderly (CPI-E) instead.
5. Policy recommendations:
- There are calls for Congress to adopt a more accurate cost-of-living index for determining Social Security COLAs.
- Financial experts recommend seniors diversify their retirement income sources to better protect against inflation.
6. Historical context:
- Automatic annual COLAs began in 1975, with the highest being 14.3% in July 1980.
- The document provides a full history of COLAs from 1975 to 2024.
7. Economic factors:
- The Federal Reserve interest rate is seen as a predictor of future COLAs, explaining about 23% of the COLA's variance.
- Current high interest rates are part of efforts to combat inflation.
This summary highlights the ongoing challenges faced by seniors relying on Social Security, the debate around COLA adequacy, and potential policy changes to address these issues.
A recent report from the Senior Citizens League has revealed alarming news for millions of American seniors relying on Social Security: They might be suffering monthly losses of nearly $400 in their benefit payments. It has been caused by the inability of COLAs to address the current inflation levels, especially in areas that heavily burden senior citizens, such as medical costs, prescription drugs, and rent or mortgage.
The financial vulnerability of the elderly population is also portrayed in the report as they struggle to make ends meet due to the increased cost of goods and services. These disparities between perceived gains and actual costs have led to new discussions on whether the current System of Social Protection adequately shields retirees from financial precariousness.
Inadequacy of Cost-of-Living Adjustments: Why the current COLA formula fails seniors
The current COLA calculation formula, namely the Consumer Price Index for Urban Wage Earners, has been criticised for not being representative of seniors’ inflation rate. In their study, the Senior Citizens League noted that Social Security payments have not kept pace with inflation in about eight of the prior 15 years.
This divergence has caused significant erosion of the fundamental values of the promised and paid benefits for the consumers and beneficiaries, where the average monthly Social Security check is roughly $370 lower than what it has been projected should purchase the same 2010 value.
The continual failure to increase COLA in proportion to inflation has rendered economic stability a distant dream for millions of retirees, leaving them more economically susceptible.
Effect on quality of life: How the $400 cut affects seniors’ daily lives
It has led to many elderly Americans experiencing financial difficulties due to inadequate Social Security revenue. Since most of the senior population depends on their Social Security payments to meet the more significant part of their income in retirement, this loss of purchasing power is exercising immense economic pressure on them.
These already low, paltry monthly Social Security payments averaging $1,778 mean that the seniors struggle to make ends meet, and this situation has been made even worse by a reduction of $400 in absolute value. Moreover, healthcare costs are rising slowly, and we can not rule out certain expectations that it is outpacing the overall inflation rates.
This financial pressure pushes many elderly individuals to extremely rationing choices on food, shelter, and medical management, which may ultimately reduce their living standards.
Recommendations for changes in policy and practice: How policy changes could help seniors
These conclusions have renewed the debate on how to modify Social Security benefits and adjust for the cost of living. Currently working as the policy analyst for the Senior Citizens League, Mary Johnson urged Congress to adopt a different and accurate cost-of-living index so that finding better annual COLAs for Social Security retirees would be implemented.
However, financial gurus are encouraging senior citizens to invest in other forms of retirement incomes with better inflation protection, like stocks, to cover for the inadequacies of the current COLA system. These specialists also emphasize the necessity of making long-term financial calculations and searching for other sources of income in addition to Social Security payments to provide a more sustainable retirement income.
The importance of addressing Social Security benefit cuts for seniors: Why this issue matters now more than ever
Therefore, the assertion that seniors potentially lose $400 monthly in Social Security benefits because of inadequate COLAs is a matter of concern. Since more people in the baby boom generation are retiring, the importance of addressing this issue grows significantly to maintain the economic well-being of millions of Americans.
Thus, the study suggests that policymakers should reconsider and redesign the existing system that provides Social Security benefits to congratulate them on the current price increases for seniors. If such measures are not taken, the economic well-being and life standards among the aging American population can remain threatened, leading to more significant consequences for seniors and reducing their spending to meet basic needs.
Cost-of-Living Adjustment (COLA) Information | SSA
Cost-of-Living Adjustment (COLA) Information for 2024
Social Security and Supplemental Security Income (SSI) benefits for more than 71 million Americans will increase 3.2 percent in 2024.
The 3.2 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 66 million Social Security beneficiaries in January 2024. Increased payments to approximately 7.5 million SSI recipients will begin on December 29, 2023. (Note: some people receive both Social Security and SSI benefits)
Read more about the Social Security Cost-of-Living adjustment for 2024.
The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $168,600.
The earnings limit for workers who are younger than "full" retirement age (see Full Retirement Age Chart) will increase to $22,320. (We deduct $1 from benefits for each $2 earned over $22,320.)
The earnings limit for people reaching their “full” retirement age in 2024 will increase to $59,520. (We deduct $1 from benefits for each $3 earned over $59,520 until the month the worker turns “full” retirement age.)
There is no limit on earnings for workers who are "full" retirement age or older for the entire year.
Read more about the COLA, tax, benefit and earning amounts for 2024.
Medicare Information
Information about Medicare changes for 2024 will be available at www.medicare.gov. For Social Security beneficiaries receiving Medicare, their new 2024 benefit amount will be available in December through the mailed COLA notice and my Social Security’s Message Center.
Your COLA Notice
In December 2023, Social Security COLA notices will be available online to most beneficiaries in the Message Center of their my Social Security account.
This is a secure, convenient way to receive COLA notices online and save the message for later. You can also opt out of receiving notices by mail that are available online. Be sure to choose your preferred way to receive courtesy notifications so you won’t miss your secure, convenient online COLA notice.
Remember, our services are free of charge. No government agency or reputable company will solicit your personal information or request advanced fees for services in the form of wire transfers or gift cards. Avoid falling victim to fraudulent calls and internet “phishing” schemes by not revealing personal information, selecting malicious links, or opening malicious attachments. You can learn more about the ways we protect your personal information and my Social Security account here.
History of Automatic Cost-Of-Living Adjustments
The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.
The CPI-W is determined by the Bureau of Labor Statistics in the Department of Labor. By law, it is the official measure used by the Social Security Administration to calculate COLAs.
Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation.
Beginning in 1975, Social Security started automatic annual cost-of-living allowances. The change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index (CPI-W).
The change means that inflation no longer drains value from Social Security benefits.
The 1975-82 COLAs were effective with Social Security benefits payable for June (received by beneficiaries in July) in each of those years. After 1982, COLAs have been effective with benefits payable for December (received by beneficiaries in January).
Automatic Cost-Of-Living Adjustments received since 1975
- July 1975 -- 8.0%
- July 1976 -- 6.4%
- July 1977 -- 5.9%
- July 1978 -- 6.5%
- July 1979 -- 9.9%
- July 1980 -- 14.3%
- July 1981 -- 11.2%
- July 1982 -- 7.4%
- January 1984 -- 3.5%
- January 1985 -- 3.5%
- January 1986 -- 3.1%
- January 1987 -- 1.3%
- January 1988 -- 4.2%
- January 1989 -- 4.0%
- January 1990 -- 4.7%
- January 1991 -- 5.4%
- January 1992 -- 3.7%
- January 1993 -- 3.0%
- January 1994 -- 2.6%
- January 1995 -- 2.8%
- January 1996 -- 2.6%
- January 1997 -- 2.9%
- January 1998 -- 2.1%
- January 1999 -- 1.3%
- January 2000 -- 2.5% (1)
- January 2001 -- 3.5%
- January 2002 -- 2.6%
- January 2003 -- 1.4%
- January 2004 -- 2.1%
- January 2005 -- 2.7%
- January 2006 -- 4.1%
- January 2007 -- 3.3%
- January 2008 -- 2.3%
- January 2009 -- 5.8%
- January 2010 -- 0.0%
- January 2011 -- 0.0%
- January 2012 -- 3.6%
- January 2013 -- 1.7%
- January 2014 -- 1.5%
- January 2015 -- 1.7%
- January 2016 -- 0.0%
- January 2017 -- 0.3%
- January 2018 -- 2.0%
- January 2019 -- 2.8%
- January 2020 -- 1.6%
- January 2021 -- 1.3%
- January 2022 -- 5.9%
- January 2023 -- 8.7%
- January 2024 -- 3.2%
Historical Consumer Price Index (CPI-U) Data
Press Brief 8.14.24 - 2025 COLA Projection is 2.57% | The Senior Citizens League
For Immediate Release:
August 14, 2024
The Cost-of-Living Adjustment for 2025 Projected at 2.57%
Our model points to a substantially lower cost-of-living-adjustment (COLA) for next year after the implementation of the 3.2% COLA in 2024. “The 2025 COLA prediction is about 2.57%, down from 2.63% last month,” says Alex Moore, The Senior Citizens League’s (TSCL) statistician and managing partner at Blacksmith Professional Services. Third-quarter numbers are very important because that's what's compared to the prior year's quarter to get the COLA.
The rate of inflation, as measured by the Consumer Price Index used to calculate the Social Security COLA, fell to 2.9% for July, down from 3.0 percent in June. This comes after another quarter of relatively high federal reserve interest rates (5.33% as of July). The Federal Reserve Interest Rate is one of the government’s key tools to tackle inflation.
Federal Reserve interest rates are important for Social Security because they are valuable for predicting future COLAs. The metric is the interest rate at which depository institutions, such as consumer banks, hold trade balances at federal reserve banks overnight. The Federal Reserve tends to increase rates to dampen inflation and lower them to encourage greater economic activity.
Our research has found that the Federal Reserve interest rate is able to explain about 23% of the COLA’s variance. On average, for every 1 percentage point increase in the federal funds effective rate compared to the previous year, the following year’s COLA rises about .82 percentage points. In short, since both interest rates and COLAs tend to rise in reaction to higher-than-expected inflation, climbing interest rates can help predict the COLA.
The government’s failure to return inflation to pre-pandemic levels is a top concern for seniors. Despite new legislation and the use of tools like higher Federal Reserve interest rates, 71% of the 2,016 seniors surveyed for the TSCL 2024 Retirement Survey in July said that persistent high prices from inflation forcing them to deplete their savings is among their top retirement concerns. More than three-quarters, 78%, said their monthly budget for essentials like housing, food, and medicine was higher than last year. More than half, 63%, worry that their retirement income will not be enough to cover the cost of essentials.
Seniors want Congress to act to ensure their Social Security benefits keep up with inflation. Using existing tools, like the Federal Reserve interest rate, is not enough. In the survey, less than 1% of seniors said that Congress shouldn’t do anything to boost Social Security benefits to address inflation-driven shortfalls. A large majority—75%—said they want Congress to pass legislation that would base COLAs on the CPI for the Elderly (CPI-E), a price index that’s specific to seniors, rather than the CPI for Urban Wage Earners (CPI-W), which is better suited to the general population.
Contact: TSCLPress@tsclhq.org
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