Social Security recipients depend on annual cost-of-living adjustments to help their benefits keep pace with rising prices across the economy.
But new data suggests those adjustments are falling well short of what retirees actually need to maintain their standard of living.
The Senior Citizens League, an advocacy group, recently found that Social Security benefits have lost a whopping 13.7% of their buying power over the past 10 years.
Experts point to a flawed cost-of-living adjustment formula as the primary driver behind this growing gap between benefits and real-world expenses.
Current COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, an index that tracks spending habits of working-age households rather than retirees.
Older Americans typically spend a larger share of their income on healthcare, prescription drugs, and housing, expenses that have risen faster than general inflation in many years.
As a result, advocates argue that the current COLA formula does not accurately reflect the costs that Social Security beneficiaries actually face day to day.
A proposed solution involves switching the formula to the CPI-E, or Consumer Price Index for the Elderly, which would likely produce larger annual adjustments for seniors.
However, the CPI-E is considered an experimental index, making lawmakers cautious about adopting it as the official basis for calculating benefit increases.
A more pressing obstacle is that Social Security faces a serious funding shortfall that could result in benefit cuts in roughly six years, putting any COLA reform further down the legislative priority list.
Changing the COLA formula to deliver higher annual raises would add further strain to an already financially stressed program that lawmakers are struggling to stabilize.
With Congress focused on preventing automatic benefit cuts, adjustments to the COLA calculation appear to have been placed on the back burner indefinitely.
For retirees already struggling with rising bills, financial advisors suggest looking beyond COLA increases and exploring supplemental income options such as part-time work.
Workers still in their earning years should recognize that Social Security COLAs only go so far and that building personal savings remains a critical strategy for long-term retirement security.
