Social Security Benefits Lost 20% of Buying Power Due to Inflation, Outlook for 2025 Is Grim

By Danielle Ong

Jul 19 2024, 06:22 AM EDT

2025 Social Security COLA: Expected Impact on Disability Benefits — U.S. Treasury checks are piled at the U.S. Treasury printing facility July 18, 2011 in Philadelphia, Pennsylvania. William Thomas Cain/Getty Images

Social Security benefits have lost 20% of buying power since 2010 due to the rate of inflation, and a forecast for 2025 points to a further loss.

In a new study released by The Senior Citizens League (TSCL), researchers found that the average Social Security payments in 2024 are worth only about 80 cents on the dollar compared to 2010. This means Social Security benefits lost 20% of buying power in over a decade.

To compensate for the lost value, payments to retirees would need to increase by an average of $4,442 yearly or about $370 a month. The typical retiree received a monthly benefit of $1,860 in January. Compensating for the lost value would mean increasing monthly payments to $2,230.

Furthermore, the TSCL recommended applying Social Security taxes to the investment income of high earners. The organization also suggested removing the tax limit of $168,600. Currently, any amount earned above that threshold would not get taxed.

What Led to the Loss

Each year, Social Security benefits are adjusted for inflation using a Cost of Living Adjustment (COLA), which is made yearly by comparing the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers during the third quarter of the current fiscal year to the average of the same period of previous years.

This year, the COLA rose by 3.2%. That is 0.2% lower than the inflation rate of 3.4. So far this decade, only one COLA has surpassed the inflation rate---specifically in 2023 at 8.7%.

Additionally, the report cited the high increase in the cost of goods over the past decade as one of the reasons for the loss of buying power. The cost of goods rose by 73% for typical retirees, averaging 4.9% yearly during the same period.

A 2025 COLA forecast suggests the situation could continue taking a grim turn, according to the TSCL's analysis of the Labor Bureau's most recent Consumer Price Index for Urban Wage Earners. The COLA next year is projected to be only 2.63%.

If the estimate holds through October 2025, when the COLA is officially announced, it would become the lowest increase recorded since 2021.