For a majority of American retirees, Social Security provides more than half of their income. Some live on the program's benefits alone. But most U.S. seniors supplement those benefits with their retirement savings.
Built into the program is a regulation that boosts the size of beneficiaries' payments every year via a cost-of-living-adjustment (COLA) that is intended to help Social Security benefits maintain their purchasing power in the face of inflation.
However, many argue that the metric used to calculate how large those adjustments should be doesn't fully reflect how rising prices impact seniors, and that, as a result, those COLAs are not keeping pace with real-world inflation.
While I'm still far away from retirement, I'm not counting on Social Security to single-handedly support me once I get there, nor am I expecting its COLAs to fully cushion my finances against inflation. Here's what I'm doing to combat that future inflation instead.
The reality of Social Security COLAs
Each year's COLA is calculated based on the U.S. inflation rate during July, August, and September of the previous year -- so, for example, however much the Consumer Price Index rises in the third quarter of 2025, that's how much benefits will get boosted starting in January 2026. While that may sound straightforward, many experts say benefits are gradually losing their purchasing power.
A 2024 study conducted by the nonpartisan Senior Citizens League (SCL) found that the average retiree's Social Security benefits in 2024 had roughly 80% of their 2010 purchasing power, and asserted that the average benefit would need to be boosted by $4,443 per year to bring it back to 2010's level.
One reason for this is that, by law, the Social Security Administration (SSA) uses the Consumer Price Index for All Urban Wage Earners (CPI-W) to calculate COLAs. However, the SCL believes the basket of products and services that the CPI-W is based on doesn't align well with what retirees actually spend their money on. Instead, the SCL would like to see COLAs calculated using the Consumer Price Index for the Elderly (CPI-E).
The SCL also points out that COLAs lagged behind annual inflation rates in eight of the last 15 years, largely because they are based on price data from a single quarter. Even minor gaps between COLAs and the actual rate of inflation can compound over time into significant losses of purchasing power for beneficiaries.
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Keeping your finances ahead of inflation
All that said, there are actions that people of all ages can take to help cushion their retirement finances against the inevitable impacts of inflation. One thing I am doing is investing as much money as I can. This does not involve high-stakes day trading or a complex options strategy. Rather, I invest money each month through a tax-advantaged retirement account and a standard brokerage account.
The great Warren Buffett has said many times that over time, the impact of compound growth is so powerful that it can make mediocre investors rich. Investors should be sure to gradually adjust their asset allocations based on their age and how long they have until retirement, but steady and consistent investing should prove to be a winning strategy.
I'm planning on working for at least another 30 years, which allows me to comfortably load up more on stocks and be more aggressive with my choices. However, when my retirement approaches, I plan to dial that back and shift more of my portfolio into less volatile assets so that I'm less exposed to the short-term gyrations of the market during the period when I'll be regularly drawing down on those funds.
Another good strategy is to try and manage your expenses and cut when you can. One thing I do each month is budget out my salary and how much I think I am going to spend. I also carefully track my progress because unexpected expenses arise.
I try and save discretionary purchases closer to the end of my credit card cycle, so I know exactly where I am at and how much I have left to work with. Coming in below my monthly budget for even three to six months of the year goes a long way because it's extra money to either invest or adds a cushion for unexpected expenses later in the year.
Finally, it can be good to practice some austerity each year. What subscriptions can you cancel? Can you go out to lunch or dinner a few times less each month? Are there material items you can live without? Can you buy certain household items in bulk? It may not seem like it at the time, but all of these little items can go a long way over a few years.
