A number of senior citizens have found the Social Security cost of living adjustment (COLA)) that is provided by Social Security to be a difficult pill to swallow.
As a matter of fact, the circumstances for some people are so precarious that a significant number of them are contemplating going back to work in order to supplement their income.
The Motley Fool ran a survey in October, shortly after the announcement of the cost-of-living adjustment (COLA), with 2,000 retirees from the United States participating.
The results of the survey were troubling, since fifty percent of respondents are contemplating leaving retirement in order to earn more money.
When seniors ask how they can improve their savings during retirement, it is a solution that is frequently given to them.
This is because looking for part-time flexible work can be a great way to get more income, better health insurance, and make more interpersonal connections to stave off loneliness. However, the fifty percent rate is concerning.
Not only was the cost-of-living adjustment (COLA) low—it was just 2.5 percent—but it would not be of much assistance to a great number of senior citizens who are already having trouble making ends meet.
One of the primary reasons is that it is computed by using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter of the current year and the average in the same period of the previous year.
This index is weighted toward young workers rather than the elderly, and as a result, it is unable to accurately convey the costs that are incurred by senior citizens.
The Consumer Price Index (CPI) that accounts for the same data but is weighted toward people aged 62 and older would be a more appropriate CPI.
54 percent of seniors who were polled believe that the most recent cost-of-living adjustment (COLA) is insufficient, particularly when compared to the 8.7 percent in 2023 or even the 3.2 percent in 2024.
This disparity in lifestyle certainly gives credit to the fact that this new COLA is insufficient. In addition, many people do not care that the lower COLA is a positive indicator, as Jack Caporal, the research head for The Motley Fool, explains:
“The average monthly Social Security payout in 2024 after the 3.2 percent COLA is $1,907. That does not even come close to covering the amount that those aged 65 and older in the United States spend each month in 2023: $5,007.
Considering that just 54 percent of families in the United States had a retirement account in 2022, it should not come as a surprise that a sizeable percentage of retirees who were polled believe that they require additional sources of income.
Social Security benefits were never expected to cover all of a retiree’s expenses; at most, they were supposed to cover forty percent of those expenses.
However, the reality is that a sizeable portion of senior citizens in the United States are completely financially dependent on their benefits; at least twenty-eight percent of those polled rely solely on their benefits to make ends meet.
An further 32 percent of those polled are extremely dependent on their payments, which accounts for more than half of the total population.
According to Caporal, “Retirees may want to return to work for a variety of reasons, including but not limited to the following: to provide daily structure, to support a charity or other cause, to provide a sense of purpose, and also for other reasons.”
The findings of the poll, on the other hand, indicate that retirees who are considering looking for new employment are motivated by the desire to stay in their existing lifestyle and to retain their financial stability.
The true problem of the effect of a low COLA on Social Security benefits
The most significant problem, as pointed out by organizations such as the Senior Citizens League (TSCL), which is a nonpartisan organization that works to advance the interests of senior citizens, is that the average Social Security benefits in 2024 are only worth around 80 cents on the dollar when compared to the payments that were made in 2010, which was already fourteen years ago.
This indicates that senior citizens are seeing a decline in their purchasing power notwithstanding the changes. They are one of the most prominent proponents of the Consumer Price Index-E as a metric.
“This year represents another missed opportunity to grant seniors the financial relief they deserve by changing the COLA calculation from the CPI-W to the CPI-E, which would better reflect seniors’ changing expenses,” said Shannon Benton, executive director of TSCL.
“This year represents another opportunity that was lost.” In order to ensure that Americans are able to retire with dignity, senior citizens and TSCL are demanding that Congress take immediate action to increase cost-of-living adjustments (COLAs).
This action might include implementing a minimum COLA of three percent and altering the COLA calculation from the CPI-W to the CPI-E.
According to the findings of our study, 67 percent of senior citizens rely on Social Security for more than half of their income, and 62 percent of them are concerned that their retirement income would not even be sufficient to meet necessities such as groceries and medical responsibilities.