Increase in Cost of Living Does Not Compensate for Loss of Purchasing Power for US Retirees

Social security in retirement is of immeasurable value to numerous American retirees. Annual surveys by the Gallup Institute show that between 80% and 90% of retirees rely on these payments. In 2024, 88% of respondents stated that this support is a significant source of income for them. Given these figures, it is little surprise that the announcement of the annual cost-of-living adjustment (COLA) is eagerly anticipated. The most recently announced changes for the year 2025 include an increase in social security payments by 2.5%. Although this adjustment is slightly above the long-term average of 2.3% since 2010, it falls short of expectations to reach historical values. Despite this increase, the average monthly social security payments for over 51 million retirees will henceforth amount to $1,976, representing a rise of $49. Nevertheless, older individuals are dealing with rising costs that will soon consume the modest increase. Particularly, the escalating expenses for housing and healthcare exert significant pressure, with inflation rates well above the 2.5% adjustment. According to a study by The Senior Citizens League, the purchasing power of social security payments has decreased by 36% since 2000 and by 20% since 2010. The prospect of reversing this trend appears slight due to systematic weaknesses in the CPI-W index. Another setback for retirees: The Medicare Part B premium—often deducted from social security benefits—is expected to increase more in 2025 than the COLA, financially straining many retirees further. These developments demonstrate that even an above-average COLA does not protect against cuts in purchasing power.