With the cost-of-living adjustment (COLA) for 2025 set at a modest 2.5%, many American retirees are reevaluating their financial situations and considering going back to work.
A recent survey from The Motley Fool, which interviewed 2,000 retirees, shows that half of them are now contemplating rejoining the workforce. This trend is largely driven by concerns that Social Security benefits may not be sufficient to maintain a comfortable standard of living.
Understanding the COLA and Its Impact on Benefits
Every year, Social Security benefits are adjusted based on the COLA, which is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index reflects the average cost of goods and services consumed by urban workers.
For 2025, the COLA of 2.5% is a significant drop from the 8.7% increase in 2023 and the 3.2% increase in 2024, which were largely influenced by high inflation rates.
While the increase will provide a slight bump in Social Security checks, many retirees feel that it falls short of their needs. According to the survey, 54% of seniors consider the new COLA inadequate. This indicates a worrying disparity between the actual cost of living and what Social Security can provide.
Rising Living Costs vs. Social Security Benefits
The average monthly Social Security benefit is expected to rise to around $1,907 in 2024. However, this amount is far from sufficient when compared to the average monthly expenses reported by seniors, which total approximately $5,070.
This glaring shortfall highlights the financial pressure many retirees face, especially those with limited retirement savings or other income sources. In 2022, only 54% of American households had retirement accounts, making many retirees reliant on Social Security alone.
Reasons for Returning to Work
Given the financial strain, a significant number of retirees are looking at part-time or full-time work as a viable option to help make ends meet. The survey found that:
- 28% of respondents rely solely on Social Security.
- 32% depend on Social Security for a substantial part of their income.
Returning to work offers retirees a dual benefit: it not only provides additional income but also allows for a more fulfilling daily routine. Many retirees view employment as a chance to contribute to their communities, engage socially, or pursue new interests.
Examining the COLA Calculation: CPI-W vs. CPI-E
One of the main criticisms of the current COLA calculation is its reliance on the CPI-W. This index doesn’t fully represent the spending patterns of older Americans, particularly concerning healthcare and housing costs, which tend to be higher for seniors.
The Senior Citizens League (TSCL), a nonpartisan organization advocating for seniors, emphasizes the inadequacies of using CPI-W for COLA adjustments. According to TSCL, Social Security benefits in 2024 have lost purchasing power, worth only 80 cents on the dollar compared to 2010.
They advocate for a switch to the Consumer Price Index for the Elderly (CPI-E), which would more accurately reflect seniors’ spending habits.
Proposed Changes to Social Security Adjustments
TSCL is calling for Congress to make critical changes to the COLA calculations, including:
- Switching to CPI-E: This adjustment would take into account the unique spending patterns of seniors.
- Establishing a minimum COLA of 3%: This would help ensure that Social Security benefits keep pace with inflation.
According to Shannon Benton, TSCL’s executive director, implementing these changes would better secure the purchasing power of seniors and provide a more stable financial future.
The Broader Financial Impact on Seniors
The financial burden resulting from rising costs and modest COLA increases goes beyond mere monthly expenses. The TSCL reports that:
- 67% of seniors rely on Social Security for more than half of their income.
- 62% worry their income won’t cover essential costs like food and healthcare.
These statistics reveal the pressing need for more substantial COLA adjustments to safeguard the financial well-being of seniors. The gap between Social Security benefits and escalating expenses is likely to drive more retirees to seek employment, not just for financial reasons but also to alleviate the stress of economic insecurity.
Legislative Action and Advocacy
Retirees and organizations like TSCL are calling on Congress to take action to improve Social Security benefits. Proposed reforms focus on:
- Adopting CPI-E for COLA calculations.
- Implementing a minimum COLA of 3% to account for inflation more accurately.
By addressing the limitations of the current COLA structure, policymakers can help ensure that seniors can retire with dignity and financial security.
| Key Issues | Current Situation | Proposed Changes |
|---|---|---|
| COLA for 2025 | 2.5% increase | Minimum 3% COLA |
| Average Social Security Benefit | $1,907 | Adjust for higher living costs |
| Average Senior Monthly Expenses | $5,070 | N/A |
| Seniors Relying on Social Security | 67% depend on it for >50% of income | N/A |
| Advocacy Group | TSCL | Push for CPI-E and COLA changes |
FAQs
1. What is the cost-of-living adjustment (COLA)?
The COLA is an annual increase in Social Security benefits to keep up with inflation. It’s calculated based on the Consumer Price Index (CPI-W).
2. How will the 2025 COLA affect my Social Security check?
The 2025 COLA will provide a modest 2.5% increase, but many retirees feel this is insufficient to meet their rising living costs.
3. Why do some retirees want to go back to work?
Many retirees are considering returning to work due to financial pressures and a desire for a more fulfilling daily routine.
4. What is the difference between CPI-W and CPI-E?
CPI-W measures the spending of urban wage earners, while CPI-E is designed to reflect the spending patterns of seniors, including healthcare and housing costs.
5. What are advocacy groups like TSCL doing?
Organizations like TSCL are advocating for changes in how COLA is calculated, urging Congress to switch to CPI-E and implement a minimum COLA of 3%.
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