Retirees remain anxious despite decline in inflation

The rate of inflation may be trending downward, but most retirees remain concerned their Social Security cost-of-living adjustment won’t keep up with rising prices.   

Tuesday’s CPI data showed continued progress toward a lower year-over-year rate of inflation, with the headline reading having come down to 6.4% in January from a cycle peak of 8.9% in June. That January headline is the lowest 12-month inflation gain since October 2021.

Despite the moderation in prices, a survey released Tuesday by the Senior Citizens League shows 54% of older consumers remain skeptical that the 8.7% Social Security cost-of-living adjustment for 2023 will keep pace with rising costs this year. Nearly the same portion of respondents said that in 2022, their household costs rose by more than the 5.9% increase in benefits from that year's COLA. 

According to the Senior Citizens League, January inflation as measured by the consumer price index for urban wage earners and clerical workers, or CPI-W — the same index used to calculate the COLA — has moderated to 6.3% from one year ago.

“The recent COLA of Social Security benefits was welcomed by retirees in the midst of rapidly rising inflation, but it is clear many feel like the adjustment fell short," said Nina Lloyd, president and CEO of Opus Financial Advisors, part of Advisor Group. "It is important to remember that Social Security was never intended to be the sole source of income for retirees.  Americans shouldn’t rely on Social Security alone to meet all their needs in retirement.

“It’s crucial to take ownership of funding the retirement you want by planning, saving, and investing throughout your career," Lloyd added. "There are no shortcuts.”

As to whether 2023 will be the year in which seniors catch up with inflation, an overwhelming 96% of survey respondents don't think so. An analysis by Mary Johnson, the Senior Citizens League's Social Security and Medicare policy analyst, may explain why.

Johnson’s study shows that over the three-year period from the start of the Covid-19 pandemic in 2020 through December 2022, despite the annual cost-of-living adjustments, Social Security benefits have failed to keep up with inflation, falling short by about $1,054 on average.

“For those concerned that Social Security benefits might not keep up with the rate of inflation, options such as annuities can serve as a supplement to retirement income.  The addition of an annuity can potentially reduce the volatility of a portfolio and provide growth to serve as a hedge against inflation,” said KaNoi Lam, a financial advisor at KWM Wealth Advisory at Stifel Independent Advisors LLC.

Meanwhile, 51% of survey respondents worry they will pay more in taxes this year as a result of the 5.9% COLA received in 2022. And close to one in five worry they may be subject to a tax on their Social Security benefits for the first time this tax season, the study said.

On a political note, 62% of the respondents think Congress should protect Social Security and Medicare benefits from delays or automatic cuts that could result from a failure to raise the federal debt limit.