The percentage of U.S. retirees who rely on Social Security varies depending on which measurement is used. If those who receive all of their income from Social Security are considered “dependent”, the percentage hovers above 50%. That is, half of retirees in the United States have no other source of income beyond social security, nor do they have savings, investments, pensions, or other income supplements besides the monthly Social Security check.
However, if we expand the definition of “dependent” to include those who receive a significant part of their income from Social Security but have other income that supplements them, the percentage increases considerably.
A study by the Center for Retirement Research at Boston College found that 84% of retirees in the United States receive at least some income from Social Security. Social security dependency also varies according to various factors such as age, educational level, previous employment income and marital status at the time of retirement and throughout the retirement term.
COLA Increments: How Does It Help Retirees Cope With Inflation?
And as for how beneficial Social Security is for retirees year after year, in the face of inflation, that depends on an adjustment called Cost of Living Adjustment, or COLA. Every year, Social Security makes an increase in benefits for both retirees and other benefits such as Supplemental Security Income or Social Security Disability Insurance (SSDI), based on the Consumer Price Index for salaried and clerical Workers (CPI-W).
This form of adjustment is much more effective and realistic, since until 1975 COLA adjustments were arbitrarily approved at random intervals during special sessions of Congress. There was not a single TAIL during the 1940s, and 11 adjustments were made between 1950 and 1974. What a mess by those years, right?
The idea of this adjustment is that Social Security benefits do not lose their purchasing power capacity in the face of inflation. That said, seniors have a legitimate reason to not be very happy this year, as the Social Security COLA increase won’t be as big as in previous years.
Only the CPI-W readings of the third quarter, that is, from July to September, are taken into account to calculate the incoming social security COLA. While analyzing the other nine months may be a way to identify inflationary or deflationary trends, they will not be used in the final COLA calculation, therefore the final number is the one announced by the SSA at the end of the correct calculation.
The Social Security COLA Increase Would Be Smaller Than in 2024
Social security checks are expected to increase more than expected during the last three years following the pandemic. Social Security benefits experienced COLA adjustments that far exceed the historical average. Specifically, the adjustments were 5.9% for 2022, 8.7% for 2023, and 3.2% for 2024.
These adjustments contrast sharply with the average COLA adjustment of 2.6% over the past two decades. The outlook has continued to improve as new inflation reports from the Bureau of Labor Statistics are released.
The inflation report for March, published on April 10, showed a slight acceleration in the prevailing inflation rate during the last 12-month period. With the Consumer Price Index (CPI-W) experiencing an increase of 3.5% compared to the previous year, TSCL once again adjusted upwards its long-term forecast for the 2025 COLA adjustment, placing it at 2.6%: a value that coincides with the average COLA adjustments recorded during the last two decades.
In a span of just three months, the estimates for the Social Security COLA adjustment in 2025 have almost doubled, thus reflecting a positive trend in terms of adapting benefits to changes in the cost of living.