Expect lower Social Security COLA amid slower inflation

Expect lower Social Security COLA amid slower inflation
Retirees can be more affected by inflation, and cost increases are not consistent across categories or geographies.
AUG 14, 2024

Inflation cooled last month to its lowest level in several years, data today from the Bureau of Labor Statistics show, reenforcing estimates that the Social Security COLA next year will be around a modest 2.6 percent.

But that will leave many retirees who live on a fixed income wanting more, as recent cost increases in critical categories are outpacing that.

Over the past 12 months through July, the rate of inflation was 2.9 percent, according to the figures from the Consumer Price Index for All Urban Consumers published Wednesday morning by the Bureau of Labor Statistics. While inflation is falling, the cost of living adjustments (COLAs) for Social Security benefits have not kept pace over 10 years, data from The Senior Citizens League show.

And further, the cost increases that retirees experience are often higher than those for workers, due in part to higher medical costs and long-term care.

“That is the key issue for all retirees,” said Mary Johnson, an independent Social Security and Medicare policy analyst. “Older consumers would consider this probably a COLA that, while they’re happy to have it … they are going to feel that it doesn’t very accurately affect their buying power.”

Social Security COLAs are based on price increases experienced by younger working adults, which is why the program’s benefits have lagged expenses for retirees, Johnson said.

Since 2010, the buying power of Social Security benefits has decreased on average by 20 percent, according to a report last month by The Senior Citizens League.

“The reality is that COLAs have become less and less likely to match inflation over time. In the 1990s and 2000s, 60 percent of COLAs beat inflation. In the 2010s, only 40 percent did. Through the 2020s so far, only one COLA out of five (2023; 8.7 percent) has done so,” that report read.

Spending on housing, medical expenses, and groceries can account for as much as 80 percent of retirees’ budgets, and if costs in those categories outpace the Social Security COLA, people living on fixed income and turn to credit cards, Johnson said.

“They may be putting more on their credit cards than they can pay off in 30 to 90 days,” she said.

Additionally, inflation isn’t consistent across geographies. For example, the wider New York City area saw inflation of 4.1 percent last month compared with a year ago, according to a report today by WalletHub. Meanwhile, the CPI increased by 3.5 percent in the Minneapolis-St. Paul area, by 3.4 percent around Detroit, and 3.7 percent in the Chicago area. But in the Denver area, the increase was comparably low, at 1.9 percent, and it was 2.1 percent around Houston, that report found.

IRA expert Ed Slott details how to avoid unnecessary tax landmines

Latest News

Dump investment banks, buy alternative asset managers, says Oppenheimer
Dump investment banks, buy alternative asset managers, says Oppenheimer

"Shares of alternative assets managers have lagged this year as investors grow wary of private-credit exposure."

Carson Group deepens Colorado presence with Arvada advisor deal
Carson Group deepens Colorado presence with Arvada advisor deal

The Omaha, Nebraska-based RIA's latest acquisition expands its Rocky Mountain footprint after two prior Colorado deals last year.

Slow advisor transitions are costing RIA firms money and talent, and the industry is starting to act
Slow advisor transitions are costing RIA firms money and talent, and the industry is starting to act

Operational drag between an advisor signing and accounts going live is emerging as a competitive liability for wealth management firms.

M&A on course for second-highest year ever as megadeals surge and AI complicates the deal equation
M&A on course for second-highest year ever as megadeals surge and AI complicates the deal equation

Bain says companies face a "winner's paradox" as AI transformation collides with complex integrations.

Rumor confirmed: Corient expands with European acquisition
Rumor confirmed: Corient expands with European acquisition

Deal lifts global assets to roughly $523 billion under management.

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income

SPONSORED Why direct indexing stopped being optional

Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.