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

Costly referral programs fuel RIA M&A growth strategies
Costly referral programs fuel RIA M&A growth strategies

With growth topping succession as the leading M&A driver, referral programs are a top of mind consideration for advisory firms making moves as Goldman Sachs, Pershing and Robinhood consider entering the referral market.

Dynasty firm Procyon Partners inks staking deal with Constellation Wealth Capital
Dynasty firm Procyon Partners inks staking deal with Constellation Wealth Capital

The $8 billion RIA is getting more fuel for geographic expansion and recruit top talent through a minority investment partnership.

Dual-share class hopes grow higher with filings from Pimco, T. Rowe Price
Dual-share class hopes grow higher with filings from Pimco, T. Rowe Price

The rush of SEC applications, which also includes JPMorgan and Schwab, reflect growing optimism over the tax-busting fund structure.

Concurrent hails first quarter advisor team growth, adding $2B in AUM
Concurrent hails first quarter advisor team growth, adding $2B in AUM

The half-dozen teams who joined the hybrid RIA in the early innings of 2025 have lifted it past a key asset milestone.

Judge Oks release of $400 million to besieged GPB investors.
Judge Oks release of $400 million to besieged GPB investors.

Meanwhile, GPB senior executives' sentencing for fraud pushed to May.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.