Cost-of-Living Adjustments (COLA) are crucial for retirees and Social Security beneficiaries, as they determine the annual increase in benefits to keep pace with inflation. Despite their importance, inadequate COLA increases have significantly eroded the purchasing power of Social Security income over the years. According to the Senior Citizens League (TSCL), a nonpartisan advocacy group, Social Security benefits in 2024 will only be worth about 80% of their value in 2010.
Declining Purchasing Power
TSCL’s Loss of Buying Power study highlights a 20% decline in the purchasing power of Social Security benefits since 2010. This decline is attributed to the fact that COLA increases have often lagged behind inflation. The COLA for 2024 was 3.2%, slightly below the inflation rate of 3.4%. The adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for July, August, and September of the current year, compared to the same months the previous year.
Historical Trends
The effectiveness of COLA in matching inflation has diminished over time. In the 1990s and 2000s, 60% of COLA increases exceeded inflation, but this figure dropped to 40% in the 2010s. Since 2020, only one COLA (8.7% in 2023) has matched inflation. Between 2010 and 2024, COLA increased benefits by 58%, or an average of 3.9% per year, while the cost of goods and services rose by 73%, or 4.9% per year.
Cost of Goods Increase
The disparity between COLA increases and inflation is starkly illustrated by the rising costs of everyday items. Since 2010:
- The price of a typical iPhone has increased by nearly 300%.
- The average price of a used car has more than doubled, up 217%.
- The cost of bread has increased by 146.7%.
- The price of ground beef has risen by 73.1%.
- Property taxes and the average home price have increased by 89%.
Need for Reform
TSCL Chairman Edward Cates emphasizes the need for changes to Social Security to restore its purchasing power. The COVID-19 pandemic exacerbated the issue, with inflation rates spiking to 8.7% in 2022 and 5.9% in 2021—some of the highest rates in 40 years. To compensate for the lost value, TSCL suggests that Social Security benefits need an increase of $4,440 per year, or an additional $370 per month.
Future Projections
The COLA for 2025 will be announced in October 2024. Initial predictions for next year’s COLA were as high as 3.5%, but have since been revised down to 2.57%. While a lower COLA may seem negative, it can indicate a decrease in inflation, potentially improving purchasing power in the following year.
Cost Increases Since 2010
| Item | Price Increase (%) |
|---|---|
| iPhone | 300 |
| Used Car | 217 |
| Bread | 146.7 |
| Ground Beef | 73.1 |
| Property Taxes/Home | 89 |
The declining effectiveness of COLA in keeping pace with inflation has significantly impacted Social Security beneficiaries. As the cost of living continues to rise, the need for a more accurate and responsive COLA calculation method becomes increasingly urgent. Without substantial changes, retirees will continue to see a decline in their purchasing power, making it harder to cover essential expenses.
FAQs
How much has Social Security’s purchasing power declined since 2010?
It has declined by 20%.
What is the COLA increase for 2024?
The COLA increase for 2024 is 3.2%.
How is COLA calculated?
COLA is based on the CPI-W for July, August, and September of the current year compared to the same months the previous year.
Why is there a need for Social Security reform?
To restore purchasing power lost due to inadequate COLA increases.
What are the predictions for the COLA in 2025?
Predictions for the COLA in 2025 have been revised down to 2.57%.