The Social Security cost of living adjustment (COLA) that is implemented by Social Security has proven to be a challenging proposition for a number of elderly individuals.
The situation is so dire for some people that they are contemplating going back to work in order to boost their income. In fact, many people are considering doing so.
Two thousand American retirees took part in a survey that was done by The Motley Fool in October, just after the announcement of the cost-of-living adjustment (COLA).
The results of the survey were troubling, since fifty percent of respondents are contemplating leaving retirement in order to earn more money.
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, it is often a solution that is given to seniors who ask how they can improve their savings during retirement. However, the fifty percent rate concerning this solution is concerning.
The cost-of-living adjustment (COLA) was admittedly modest, coming in at just 2.5 percent, and it would not be of much assistance to a great number of older citizens who are already striving to make ends meet.
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 are used to calculate it.
This index is weighted toward young workers rather than the elderly, and as a result, it is unable to accurately convey the expenses that seniors face. This is one of the primary reasons why it is not accurate.
The Consumer Price Index (CPI) that is more relevant would be the CPI-E, which is the same data but is weighted toward individuals who are 62 years old or older.
When compared to the 8.7 percent in 2023 or even the 3.2 percent in 2024, this disparity in lifestyle could very well be the reason why 54 percent of seniors who were polled believe that the most recent cost-of-living adjustment (COLA) is insufficient.
“The average monthly Social Security payment in 2024 after the 3.2 percent COLA is $1,907.” This is the explanation provided by Jack Caporal, the research head for The Motley Fool. However, many people do not realize that the lower COLA is a positive indicator.
This does not even come close to covering the five thousand dollars that people aged 65 and older in the United States spend each month in 2023.
It should not come as a surprise that a sizeable proportion of seniors who were polled believe that they require additional income, given that in 2022, just 54 percent of households in the United States had a retirement account.
The reality is that a sizeable portion of American seniors are completely financially dependent on their benefits; at least 28 percent of those polled rely solely on their benefits to make ends meet.
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.
This could be a contributing factor to the problem. The remaining 32 percent, which accounts for more than half of those polled, are extremely dependent on their payments.
When Caporal adds, “Retirees may want to return to work for a variety of reasons: to provide daily structure, to support a charity or other cause, to feel like they have a sense of purpose, and for a variety of other reasons.”
In spite of this, the findings of the poll indicate that retirees who are considering looking for new employment are motivated by the need to maintain their existing lifestyle and financial stability.
The true problem of the effect of a low COLA on Social Security benefits
Compared to 2010, which was already fourteen years ago, the average Social Security payments that would be received in 2024 are only worth around 80 cents on the dollar.
This is the primary concern that organizations such as the Senior Citizens League (TSCL), which is a nonpartisan organization that works in the interests of senior citizens, bring out.
Despite the changes, this indicates that senior citizens are seeing a decline in their purchasing power. One of the most prominent proponents of the CPI-E as a statistic is an organization like this.
“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 otherwise lost.” TSCL and senior citizens are demanding that Congress take immediate action to increase cost-of-living adjustments (COLAs) in order to ensure that Americans may retire with dignity.
Some of the measures that Congress should take include implementing a minimum COLA of three percent and altering the COLA calculation from the CPI-W to the CPI-E. 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 cover necessities like groceries and medical expenditures. This is according to the findings of our research.
