It’s not that retirees who rely on Social Security are necessarily powerless to do something about it, but the fact is that the situation is not holding up.
Think tank proposes capping Social Security benefits at $100,000
A Washington think tank has proposed capping annual Social Security benefits for married couples at $100,000 as a way to reduce a looming deficit in retirement trust funds.
There’s no denying that everything is more expensive these days, and not just compared to a few years ago. Prices were already uncomfortably high back then, so the cost of basic necessities like food and gasoline, as well as rent, health care, and utilities, now seem higher than they did just a short time ago. month before.
And this begs the question: Has the 2.8% cost-of-living adjustment (COLA) to Social Security monthly benefit payments implemented earlier this year already become meaningless, if not completely inadequate?
What is cola?
For those unfamiliar with the term, a COLA is exactly what it sounds like: an increase in the amount you pay to reflect the increased cost of living.
In this case, the adjustments that the Social Security Administration makes in a given year are ultimately determined by the U.S. Bureau of Labor Statistics’ calculations of national inflation, as measured by the Consumer Price Index (CPI). Specifically, the Census Bureau’s average year-over-year inflation rate for each month in the third calendar quarter is the amount of the COLA in place at the beginning of the following year.
This year’s adjustment was a 2.8% increase over the 2025 payment.
Unfair approach to how decisions are made
However, it is understandable that there is some backlash against this approach based on several concerns. One is when the COLA goes into effect. Social Security beneficiaries always end up receiving what they are entitled to, but always after costs have increased, sometimes long afterward.
The other issue is much more problematic for the vast majority of people who rely on Social Security benefits. There are currently 53.6 million retirees receiving Social Security retirement benefits. Their effective cost of living is not necessarily reflected in the Bureau of Labor Statistics’ broader inflation calculations. This calculation specifically reflects changes in the cost of living for national households whose main source of income is labor-based wages, and is an index called CPI-W. Another metric is CPI-E. It is specifically designed to reflect the cost of living for the country’s senior citizens (age 62 and above). The CPI-E can, and often does, differ significantly from the CPI-W diagram. For 2025 as a whole, the Bureau of Labor Statistics’ CPI-E grew by around 2.9%, following a 3.1% increase in 2024. Both numbers are larger than comparable calculations for working households over the same period.
Unsurprisingly, rising medical costs are the main reason for the rising cost of living for seniors.
COLA is not keeping up
Let’s fast forward to today. What has already changed since the 2025 COLA goes into effect in 2026?
Through March, the CPI-E has risen nearly 3.3% over the past 12 months, with gas and food accounting for the largest portion of this increase. Even if you exclude these two categories from the calculation, prices are still up 2.6% year-over-year as of last month.
And it’s even worse for people over 62, who are likely to receive and rely on Social Security benefits. Overall costs have increased by nearly 3.3% over the past 12 months, with nearly half of that increase realized since the end of last year. Although rising medical costs are not a major factor, transportation and housing costs are the biggest reasons for the increase in living costs.
To make matters worse, the total CPI-E is now 25% higher than it was just five years ago, highlighting how seemingly minor COLA shortcomings can cumulatively turn into more serious problems over time.
Action is the solution
Retirees’ frustration with inadequate Social Security COLAs is understandable. Just don’t get so focused on the unfairness of the issue that you end up losing perspective on it. This year’s 2.8% cost-of-living adjustment added only about $58 to a typical $2,071 monthly retirement payment. The raise the retiree probably deserved was not overwhelmingly good, and would have been only about $60 a month.
Also, don’t get so attached to the numbers you can’t do anything about that you forget what you can do with the numbers you can control. This includes shopping around for high-yield places to store your cash or switching from low-yielding investments to investments that produce better cash flow before you need the cash. For example, simply increasing the average yield on $10,000 worth of dividend stocks from 3% to 3.5% equates to $50 worth of additional dividend income per year, which is a very achievable adjustment for most retirees. It may also be beneficial to look for another Medicare supplement.
Importantly, while cost-of-living adjustments may not actually match the rising cost of living, small actions can go a long way toward offsetting the inflationary headwinds you are actually facing.
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