The impact of inflation on Social Security benefits is tangible and beneficiaries feel it month after month, especially after the pandemic when the consumer price index (CPI-W) caused a cost-of-living adjustment (COLA) in 2023 of 8.7%, and an increase of 3.2% in 2024.
The problem is that the Social Security COLA increases do not keep pace with inflation at the same rate, which is why beneficiaries have been losing purchasing power over the last 10 years. According to a recent report from the Senior Citizens League, retirees would need an average monthly increase of $370 in their checks to offset a 20% loss in their purchasing power.
How Much Should You Increase Social Security Benefits?
This gap implies that the average monthly benefit of $1,860 would have to increase to approximately $2,230 to maintain the same standard of living as more than a decade ago. However, the reason behind this drop is clear: inflation has severely impacted living costs as we mentioned before.
All this means that, for every $100 that a retired household spent on food in 2010, today they can only buy around $80, meaning they have a deficit of up to 20%. This was explained by Shannon Benton, executive director of the Senior Citizens League, in an interview with Yahoo Finance in which she told about this whole odyssey of benefits trying to escape inflation.
How Is the Social Security COLA Adjustment Calculated?
The COLA increase is made based on the Consumer Price Index (CPI-W), an indicator that follows the cost of living for urban wage earners and administrative workers. The calculation process follows some steps:
- Inflation data from the third quarter of the current year (July, August, and September) are taken into account.
- That period is compared with the same period but from the previous year
- If the CPI-W has increased compared to the previous year, the percentage increase is calculated. This percentage is the COLA that will be applied to benefits.
- The decided COLA increase applies to retirement, SSI, and SSDI benefits beginning the following January 1, in this case, January 2025.
As an example: If the calculation determines that there was a 3% change between a CPI-W and the previous one, then a check that used to be $1,000 will go up to $1,030.
The COLA Increase Will Not Be Enough, Experts Warn
The COLA increase in 2025 will probably be lower than that in 2024, which was 3.2%, and new estimates from The Senior Citizens League (TSCL) place it at around 2.5% and 2.6%, which is quite close to Congressional Budget Office projection.
This means that, even though the consumer price index fell in June, the annual inflation rate would be at 3%, meaning that a COLA increase of 2.5% (or even 2.6%) would cause recipients to lose purchasing power.
Even if the situation improves, it won’t be enough to make up for all these years of losses adding to the loss they will suffer this year. We will have to wait until mid-October to find out how much the increase decided by the SSA will be.