Social Security Cost-of-Living Adjustments Lagging Behind Inflation
Amid the pandemic, Social Security cost-of-living adjustments have failed to keep pace with inflation, causing the average retiree to lose $1,054 in purchasing power since 2020. The Senior Citizen League, an advocacy group for seniors, conducted an analysis that revealed this concerning trend. The adjustments that Social Security recipients receive annually have not matched the actual increases in the cost of living experienced by households in 2021 and 2022.
The primary purpose of the cost-of-living adjustment to Social Security benefits is to safeguard recipients' income from being eroded by inflation. However, due to the way the adjustments are calculated, they often fall short of the mark. The adjustment, determined in October, is based on the Consumer Price Index's year-over-year increase. In periods of rising inflation, such as 2021 and 2022, the adjustment tends to lag behind the actual rate of inflation.
Thankfully, when inflation decreases—as it is currently doing—the situation reverses. This year's adjustment of 8.7% is the highest in decades, with the average recipient expected to regain approximately $39 in purchasing power come January, according to the analysis.
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