If you're worried about Social Security cuts, well, there's unfortunately a good reason to be. Social Security is facing a serious financial shortfall in the coming years as older workers retire in short order.
See, the program's main source of revenue is payroll taxes. But if there are fewer members of the labor force because of a mass retirement, then Social Security will see its revenue shrink.
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And remember, those leaving the workforce in the coming years are apt to start claiming benefits shortly thereafter, if not simultaneously. So all told, Social Security is facing a real double-whammy.
Now, the good news is that Social Security has trust funds it can tap to keep up with scheduled benefits for the time being. But the time being may be over in about a decade, at which point benefit cuts could be on the table.
Clearly, that's a problem. But Social Security is also facing a huge problem at present that lawmakers need to prioritize.
Social Security COLAs aren't keeping up
Social Security benefits are eligible for a cost-of-living adjustment (COLA) each year. The purpose of those COLAs is to help beneficiaries maintain their buying power as inflation drives the cost of living up.
The problem, though, is that Social Security's COLAs are failing seniors -- and they have been for decades. A 2023 report by the nonpartisan Senior Citizens League found that Social Security recipients had lost 36% of their buying power since the year 2000. And a big reason boils down to how those COLAs are calculated.
Social Security COLAs are based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). When there's an increase in the CPI-W from one year to the next, benefits get a raise. If there's no increase, benefits remain flat -- that is, they don't decrease.
But the CPI-W is not a great measure of the costs seniors face. As one might imagine, the expenditures of urban and clerical workers differ from those who are older and not holding down jobs.
Retirees, for example, commonly spend more on healthcare than their younger counterparts. But the CPI-W doesn't account for healthcare costs the way a more senior-specific index might.
That's why advocates have been pushing lawmakers to use a CPI-E -- Consumer Price Index for the Elderly -- to calculate COLAs. But so far, there's been no movement in that regard.
Savings can protect seniors from insufficient COLAs
So far, 2025 COLA estimates for Social Security are coming in lower than 2024's number, which was a 3.2% increase. And there are many seniors today who are no doubt worried about a minimal raise in the coming year.
The reality, though, is that it's not a good idea to be reliant on Social Security COLAs -- especially given their obvious shortcomings. So if you're someone who's still working, try your best to build up a decent-sized nest egg so you can supplement your Social Security income once your career comes to an end.
Lawmakers should be working to make Social Security COLAs more equitable. But seeing as how they're soon going to have to address the problem of benefit cuts before Social Security's trust funds run dry, they may decide to focus their efforts there and put COLAs on the back burner. So it may be on you to set yourself up with enough income to overcome those ineffective raises.
