New York, New York – Seniors across the country rely on monthly Social Security benefits to cover essential expenses like housing, medication, and food. However, while these benefits are supposed to keep pace with inflation through yearly cost-of-living adjustments (COLAs), many retirees are finding that their purchasing power is actually decreasing over time.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to calculate Social Security COLAs, but it fails to accurately reflect the true costs that seniors face. As a result, the Senior Citizens League reports that seniors on Social Security experienced a 36% decline in buying power since the year 2000, even with an 8.7% COLA in 2023.
Between 2000 and 2023, Social Security COLAs increased benefits by 78%, while the cost of goods and services for typical retirees rose over 141%. Healthcare expenses, a significant portion of seniors’ spending, continue to rise annually, further eroding the impact of COLAs on seniors’ purchasing power.
To combat these challenges, it is crucial for retirees to rely on their personal savings in addition to Social Security. By investing in retirement accounts early and consistently, individuals can build wealth that may outpace inflation and provide financial security in later years.
A retirement portfolio generating an average 8% annual return over 40 years could result in a nest egg of around $1.24 million with monthly contributions of $400. By strategically managing withdrawals from this nest egg in retirement, individuals can mitigate the impact of Social Security benefits that struggle to keep up with inflation.
As experts caution against relying solely on Social Security during retirement, the limitations of COLAs to combat inflation serve as a compelling reason to prioritize personal savings. By starting to fund retirement accounts at a young age, individuals can better prepare for financial stability in their later years. It is essential to take proactive steps towards financial planning to ensure a comfortable retirement free from financial worries.