Social Security is many seniors' primary source of retirement income, but it was never intended to function this way. It was only designed to replace about 40% of pre-retirement income, according to the Social Security Administration. But if you ask today's seniors, you'll find that the mileage varies.
While 29% of the retirees recently surveyed by Nationwide reported that their benefits covered at least 40% of their pre-retirement income, an alarming 24% found that their benefits replaced less than 10% of their income. Below, we'll look at some possible reasons why and what you can do if you feel your checks aren't going far enough.
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Social Security's diminishing buying power
You probably know that inflation drives up living costs over time, forcing you to spend more in order to maintain the same lifestyle you're used to. To counteract this, the government gives Social Security cost-of-living adjustments (COLAs) in most years.
It calculates COLAs by looking at the difference in third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This measures how much the cost of a bunch of common goods and services has changed over time. In 2023, the average CPI-W data for the third quarter was 3.2% higher than the data from the third quarter of 2022, so the 2024 COLA became 3.2%.
It sounds like a good system in theory -- or at least it does until you realize that the CPI-W doesn't look at the expenditures of retired households. There's a separate index for that: the Consumer Price Index for the Elderly (CPI-E). Comparing this to the CPI-W reveals that seniors have some unique spending habits, and relying on the CPI-W may actually be hurting Social Security benefits over the long term.
The Senior Citizens League found that if Social Security COLAs were based on the CPI-E, seniors receiving the average Social Security benefit would've gotten nearly $2,700 more from the program over the last 10 years because the CPI-E rises more quickly than the CPI-W in most years.
As a result of the current COLA formula, Social Security has lost about 36% of its buying power since 2000. This could explain why some seniors find that their checks cover far less than the 40% of pre-retirement income the Social Security Administration promises.
Unfortunately, it's not an issue that's likely to change anytime soon. While there are those in government calling for a change to CPI-E-based COLAs, there's yet to be any real movement on this issue. There are also concerns about Social Security's solvency to weigh. Increasing COLAs would help in the short term, but it would only exacerbate the funding crisis the program is facing, possibly moving up the timeline on potential benefit cuts.
What seniors can do
If you're already claiming Social Security, the size of your checks is more or less locked in. It is possible to withdraw your Social Security application within 12 months of starting if you regret your choice and want a do-over. But you'll have to repay all you've received in benefits thus far.
You can also temporarily suspend benefits once you reach your full retirement age (FRA). Doing so will enable you to earn delayed retirement credits that boost your future benefit, but you'll have to do without Social Security in the meantime.
When those things aren't options, you'll have to look for other sources of retirement income. This could include a job if you're still able to work. And of course, you can always supplement with personal savings.
You may also want to see if you or other members of your household qualify for additional government benefits. For example, if you have a spouse at least 62 or older or dependent children, they may also be able to qualify for Social Security benefits on your work record. This could bring additional money into the household to help you cover a larger percentage of your expenses.
Supplemental Security Income (SSI) is another option. This is a monthly benefit administered by the Social Security Administration to the blind, disabled, and low-income seniors. How much you get depends on your household income and assets. The maximum federal benefit is $943 per month for an individual or $1,415 per month for a couple in 2024, and many states offer their own supplements as well.
The best path forward for you might include several of the steps above. Think through all your options and decide what's worth trying right now. Don't forget to reevaluate your budget each year once the new Social Security COLA information comes out so you can maintain your financial security over time.
