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Social media is full of seniors complaining about inflation, the inadequacy of Social Security and its COLAs to keep up.
I was curious. Is that true and what has happened to my purchasing power since retiring in January 2010?
To match the purchasing power of $100 in 2010, you would need approximately $153.15 in 2026.
Meanwhile, $100 in Social Security benefits in 2010 has grown through compounded Cost-of-Living Adjustments (COLAs) to $147.36 in 2026. Not equal, but not that far apart either. The greater portion of total retirement income provided by SS, the closer to matching inflation a retiree is – although I suspect it doesn’t feel that way depending on how adequate Social Security was upon retirement.
The biggest contributor to current prices was the unusually high COVID related inflation during 2021–2022. Inflation has since moderated, but prices generally have not fallen—they’ve simply been rising more slowly.
For the typical family, the largest increases have been: Housing (rent, home prices, property taxes, insurance), Restaurant meals, Hospital and medical services (more accurate insurance premiums), Child care and Groceries.
However, we need to consider that not everyone uses the goods and services in the CPI the same way or at all in some cases.
For example, for seniors buying a home, a new vehicle, child care, tuition even medical care are highly variable. As usual, our Medicare and Medicaid premiums have increased, but our out of pocket healthcare expenses have not despite using hundreds of thousands of dollars in services.
The average Social Security benefit being paid in January 2010 has increased by $595/month. The Medicare Part B premium has increased by $92.40.
Here is an interesting perspective. If I was following the 4% withdrawal rule upon retirement and had investments of $1,000,000 in 2010, what would I be withdrawing in 2026?
I would be withdrawing approximately $61,260 per year in 2026
There are so many variables living in retirement that averages and CPI inflation cannot be applied uniformly, but to me one thing is clear, nobody should retire without a strategy to cope with inflation over several decades. It appears many retired Americans have not planned or considered the impact of rising prices on a surviving spouses income.
Someone claiming SS at 62 is obviously giving themselves a very low floor for their annual COLA. I heard several friends complain that last year’s COLA barely covered the increased Medicare premium. That was not an issue for someone who delayed claiming.
I know this is not always an option, but staying in the workforce longer is a great tool to deal with inflation.
The significance of inflation and its affect on our future purchasing power is hard to overstate. Everyone should take what you wrote in the last paragraph seriously. I mentioned in a previous comment that Bernstein and McQuarrie wrote an excellent and easy to understand article on this topic which I highly recommend to all readers on this blog. “The Money Illusion”.
Go to:
http://www.muckrack.com/william-bernstein/articles
As for coping with inflation, I chose what Bernstein, Jonathan and others suggested: Delaying SSA until 70 to maximize the COLA protected monthly payout amount and a fair amount invested in TIPS.
My best 35 years of earnings are not at all impressive, but having delayed SS to age 70, my monthly benefit (according to AI) is in the top 2%. That’s one (huge) tool Chrissy will have to fight inflation after I croak. That larger benefit also enables us to rely less on IRA distributions, leaving more funds available to deal with future inflation.
But what happened to funds between FRA and age 70? Did you have to use more?
If you recall, I was lucky to have the income tax practice, which I ran to age 70. Three months being busy, nine months being semi-retired. I realize that not everyone is able to work like that.
I think if my situation would have been different, I would have tried to work part-time. I know I would not have been comfortable drawing down my savings.
I know we have been over this many times before. But hypothetically which do you think would benefit a surviving spouse more assuming both spouses live past age 70?
A monthly benefit 24% higher or a lump sum of $500,000 + to do anything desired with including generating monthly income and a legacy?
Well, my survivor is going to have both. If I have to choose just one, it’s $500k, for sure.
But I don’t understand where that comes from. You wouldn’t have to spend down $500K of your nest egg in order to delay claiming for three years (8%x3=24%). I’m thinking, you may have to spend down $100K, and in that case, delaying still might make sense.
What am I missing?
Keep in mind, I’m still an advocate of staying in the work force, if possible, in order to avoid any spend down.
True, but delaying has a cost and a risk and it still depends on the percentage SS is of retirement income. For most it is much less than 50%.
Dick,
Per my calculations of the data you presented the increase in Social Security payments has covered 94% of the increase in CPI-W (workers- which is used for calculating the inflation adjustment). A more accurate inflation gauge for those retired though is the R-CPI-E (Research CPI for the elderly: 62+) which per AI climbs roughly 0.2 to 0.3 percentage points faster per year on average than the CPI-W used for official Social Security adjustments.
Maybe someone more mathematically inclined (my brain is not wired for calculating compounding) than me can calculate what the increase would be since 2010 using this data for a more accurate comparison.
According to Gemini, CPI-W reaches $147.36 since 2010 on $100 while CPI-E gets to $152.00 – $154.40. Not that big a deal in my view. And there are years where the CPI-E is actually lower.