Thanks largely to inflation, Social Security benefits have lost 20% of their buying power since the year 2010, according to new research from The Senior Citizens League (TSCL).
That means payments for retired workers would need to rise by $4,440 per year or $370 per month on average to rebuild their lost value, per TSCL’s 2024 Loss of Buying Power study. Today’s average monthly Social Security benefit of $1,860 would need to rise to $2,230 for the benefit’s buying power to equal what it was in 2010.
“Between 2010 and 2024, Social Security COLAs increased benefits by 58%, averaging 3.9% per year. However, the cost of goods and services purchased by typical retirees rose by 73%, averaging about 4.9% annually over the same period,” Shannon Benton, Executive Director of TSCL, told 401(k) Specialist. “This means that for every $100 a retired household spent on groceries in 2010, that household can only buy about $80 worth today, putting a significant strain on their finances.”
The study confirms that prices older consumers are paying have outstripped annual cost-of-living adjustments (COLAs), leaving many on the edge of financial distress. For example, TSCL points to the COLA of 5.9% implemented in 2022. While the raw value was historically high, inflation came in 1.1 percentage points higher, at 7.0%, according to the Consumer Price Index (CPI).
This trend has repeated all too often since the start of the 2010s: Eight of the last 15 COLAs have failed to surpass inflation for the year in which they were implemented, with five of these COLAs ranking in the bottom 10 since 1976 in terms of their strength relative to inflation (1976 was the first year the government used the CPI to determine the COLA).
The research also shows that COLAs have become less and less likely to match inflation over time. 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 (2023’s 8.7%) has done so. This year’s 3.2% COLA increase might make it two out of six, as through June (the most recent inflation data available), the annual inflation rate in the U.S. was 3% for the 12 months ending in June.
“The Social Security COLA of 3.2% for 2024 increased the average retiree benefit by $59 per month. If the COLA increases by 2.6% for 2025, that will be an approximately $45 increase; hardly enough to keep up with the new ‘normal’ of increased costs,” Benton said.
“With a projected COLA of 2.6%, seniors will still struggle to make ends meet, and the gap between what they’re earning from Social Security and what they can actually purchase will be even wider.”
TSCL’s Shannon Benton
As of mid-July, TSCL was predicting that the 2025 Social Security COLA would be 2.6%. The official 2025 COLA will be calculated based on the average rate of inflation using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter (July, August, and September) of this year, which is compared against the third quarter from the prior year. That final official Social Security COLA raise for next year will be announced on Oct. 10, 2024.
“The bottom line is that, with a projected COLA of 2.6%, seniors will still struggle to make ends meet, and the gap between what they’re earning from Social Security and what they can actually purchase will be even wider,” Benton said.
TSCL notes that fast-rising costs for big-ticket items are the biggest culprit. For example, the cost of the average iPhone has increased by more than 300% since 2010, while the price of the average used car has more than doubled. Housing, in particular, puts extreme financial stress on seniors. The cost of an average home and real estate taxes in the U.S. have risen by 89% since 2010, and according to the CPI for the Elderly (CPI-E), a price index the Bureau of Labor Statistics uses to reflect how seniors divide their expenses, housing makes up nearly half of the typical senior budget.
Pushing for a COLA tether change
TSCL has long advocated for a change to how annual Social Security COLAs are calculated—calling for a change from being tethered to the current CPI-W to the CPI-E, which supporters say does a better job of tracking actual expenses of seniors, including increased spending on healthcare.
TSCL said last year that if the CPI-E was used instead of CPI-W to calculate the Social Security COLA, the 2024 increase would have been 4% instead of the 3.2% raise beneficiaries received for 2024.
The CPI-E tends to rise more quickly than the CPI-W in most years, but there are notable exceptions, such as in 2021 and 2022, when gasoline prices soared. The Social Security 2100 Act, legislation first introduced in the House by Representative John Larson (D-CT) in 2021, would change how the COLA is determined by requiring the higher of the CPI-W or the CPI-E to be used in calculating the COLA.
Democratic presidential candidate Kamala Harris has hinted she would favor switching the COLA tether from the CPI-W to the CPI-E.
“Without an accurate cost-of-living adjustment that keeps pace with rising costs, beneficiaries lose purchasing power, especially over the course of a retirement that could last 25 to 30 years,” TSCL said in a July 18 release announcing the 2024 Loss of Buying Power study. “This loss is cumulative and grows deeper as retirees age. It can cause substantial hardships, including more rapid depletion of savings than expected, growing debt, and worse health outcomes. In short, a meaningful deterioration in an older household’s standard of living.”
SEE ALSO:
• Updated 2025 Social Security COLA Forecasts Point Toward Lower Raise
• 2 Ways a Harris Presidency Could Impact Social Security
• Social Security Benefits Lose 40% of Buying Power Since 2000
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
