According to Lagradaonline, Despite recent government data indicating a decline in inflation, many retirees are still grappling with rising costs. The upcoming cost-of-living adjustment (COLA) for 2025 may not provide sufficient relief, particularly for seniors who depend on Social Security benefits as their primary source of income. Independent Social Security and Medicare policy analyst Mary Johnson predicts a 2.6% COLA for 2025, which is slightly lower than the 3.2% adjustment in 2024 and significantly below the 8.7% increase received in 2023.
The average Social Security benefit for retirees is expected to rise to $2,230. However, Johnson notes that the projected COLA for 2025 would be the lowest since 2021, though it aligns with the average adjustment over the past two decades. This projection remains subject to change, as the Social Security Administration bases its annual COLA on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the broader Consumer Price Index (CPI). The official announcement is typically made in early October.
A recent AARP survey reveals that 61% of Americans aged 50 and older are concerned about insufficient retirement funds. Additionally, 37% of older Americans are worried about affording essentials like food and housing due to inflation, while 70% fear that rising prices are outpacing their wages. According to the Center for Retirement Research at Boston College, retirees are more vulnerable to the effects of inflation because their income is less likely to increase in response to rising prices.
While Social Security benefits are adjusted annually for inflation, some experts argue that these increases have not kept pace with the actual cost of living. Research from the nonpartisan Senior Citizens League indicates that since 2010, average Social Security benefits have lost 20% of their purchasing power. To maintain the purchasing power retirees had in 2010, average monthly Social Security benefits would need to increase from $1,860 to $2,230—nearly a 20% rise.
The Importance of American Purchasing Power
Purchasing power refers to the value of currency, measured by the amount of goods or services one unit can buy. Over time, inflation erodes purchasing power, meaning that as prices increase, the same amount of money buys fewer goods or services. This concept is crucial in economics, influencing everything from national prosperity to individual purchasing decisions and Social Security benefits.
A decline in purchasing power functions much like a cost increase. By comparing the price of an item or service to a price index, such as the Consumer Price Index (CPI), one can gauge purchasing power. For example, the purchasing power of $300,000 today is far less than it was ten years ago, meaning buyers in that price range now have fewer options.
When purchasing power diminishes due to high inflation, it can lead to significant economic consequences, including increased living costs, higher interest rates affecting global markets, declining credit scores, and insufficient Social Security benefits. These factors can collectively contribute to an economic crisis.
