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A new Social Security cost-of-living adjustment projection based on this week’s hotter-than-expected Consumer Price Index numbers suggests benefits are likely to increase by a non-trivial amount next year. The CPI rose 3.8% in April from a year earlier, the Bureau of Labor Statistics reported Tuesday, driven in large part by higher oil prices caused by the Iran war. The more rapid inflation could help widen the Social Security adjustment to 3.9% in 2027, or 1.1 percentage points more than this year’s near-average boost of 2.8%. The actual increase, set to be announced in October, will be calculated by taking the average annual inflation rate as reported for July, August and September.
“Many seniors are telling us the same thing,” said Shannon Benton, executive director of the Senior Citizens League, which published the COLA projection. “As inflation picks back up, life still does not feel affordable.”
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An Affordability Crisis
If the average annual inflation rate lands at 3.9%, the average benefits check for retired workers would increase by $81.17, from $2,081.16 to $2,162.33. While that’s good news for retirees living on fixed incomes, the costs that matter most (especially healthcare, housing, utilities and insurance) continue to rise faster than prices in the rest of the economy.
With inflation rising back toward the highs of the early 2020s, many seniors have already started cutting back on essentials to make ends meet. For example, more than 57% have skipped one or more medical products or services in the past year due to cost. Higher oil prices have historically coincided with both higher food prices and broader consumer inflation, Benton warned. In other words, when gas prices go up, other things tend to follow. “[Higher costs] are silently wrenching seniors dry,” Benton said.
Overall, healthcare remains the biggest financial pressure facing seniors. Even modest increases in Medicare premiums, prescription drug costs or insurance expenses can significantly reduce the real value of annual COLA increases. Housing affordability also remains a growing concern, particularly for retirees living in high-cost metropolitan areas:
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Compared with 2016, Social Security benefits are only worth about 86.3 cents on the dollar, having lost nearly 14% of their buying power due to COLAs that do not keep up with real-world inflation.
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Payments would need to rise by 15.7%, or $295.85 per month for the average beneficiary, to recover the lost value.