You Won’t Believe How Much Purchasing Power Social Security Retirees Have Lost Over the Last 14 Years

Millions of seniors rely on their monthly Social Security benefits to stay afloat in retirement. But for some people, these payments make up the majority of their retirement income—or even their entire income. This is a problem because the program’s cost of living adjustments (COLAs) have not kept up with inflation at all over the years.

Why Social Security COLAs Don’t Do Their Job

Target Social Security COLA The goal is to help seniors cope with the rising cost of living. The problem, however, is that Social Security’s COLA does not necessarily increase in line with the costs that seniors are likely to face. This is due to an error in the way they are calculated.

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Consumer Price Index-Wage (CPI-W) data is used to determine how much Social Security benefits increase from year to year. But the CPI-W is not a good measure of spending specific to Social Security recipients, namely because many are not wage earners and because many do not live in urban areas.

The Senior Citizens League recently reported that the 2024 average Social Security Compared to 2010, payouts are only about $0.80 per dollar. This means that Social Security beneficiaries have lost about 20% of their purchasing power over the past 14 years. On average, it would take another $4,442 a year in Social Security benefits to bring their value back to 2010 levels.

Of course, this begs the question: Will lawmakers change the way Social Security’s COLA is calculated? Answer: perhaps. But this is also not something older people can count on.

Don’t Get Suffered by Insufficient Social Security COLAs

The best way to avoid a situation where you Not The struggle to maintain your purchasing power year after year in retirement is to set yourself up for minimal dependence on Social Security from the start. If you bring large nest egg Once you retire and use Social Security for additional purposes, it won’t make much of a difference unless your benefits increase substantially year after year.

To be successful in creating a large savings, give yourself time. And know that, given a long enough window, you can save quite a lot of money even if you don’t part with one-third of your salary each month.

Imagine saving $500 a month for retirement for 35 years. This gives you some leeway to start saving money around age 30 if it’s not possible to do so at an earlier age.

If your investments generate an average annual return of 8%, which is slightly lower stock market averageyou’ll receive just over $1 million. And if you can save $500 a month for 40 years with an 8% return, you’ll retire with just over $1.5 million.

Even if you can only save a small amount in retirement, you can use that money to offset the minimum Social Security COLAs you may be eligible for. So don’t feel like your retirement is doomed by $150,000 in savings.

Over time, lawmakers may finally be able to address the glaring problem with Social Security’s COLA calculation. But until then, it’s best to take matters into your own hands to prevent your finances from suffering.