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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.
I assume your SWR example is supposed to be a backhanded diss of the concept of being confident with an appropriate SWR. But you’ve left out what that $1m starting pot appropriately invested would have compounded to in 16 years. I’d suggest most equity weighted portfolios would have grown more than 53%.
Also you’re 16 years closer to death so the pot simply does not have to last as long now as in 2010.
That in practice is the modern way people end up handling inflation.
I had to look up what SWR stood for. In a former life I was an electrical engineer and it meant something else to me long ago!
No diss of any kind intended. I was, in fact, curious about the impact of inflation because of all the posts I read from seniors.
I have been taking RMDs for twelve years which approximate 4% and my IRA has indeed still grown – over that particular period.
Needless to say, being confident living on withdrawals also depends on the size of the initial fund generating the withdrawals and that the withdrawal rate can cover all planned and unplanned expenses over a retirement or there are other resources to cover unexpected expenses.
I suspect the posts you read from seniors are those that do not really have adequate funds built up in IRAs (or other investment orientated savings) to act as the buffer on top of SS.
The world has however changed and anyone who has retired in the past 10 years (or is coming up to retirement) should be aware of the utility in maintaining equity market exposure as a key part of managing inflation (and other life event) risks.
As has been discussed before SWR is only a tool not the entire answer. If you’re asking how much can I draw from $1m capital then 40k pa (rising with inflation) is a reasonable answer for a 30 year lifespan etc. That does nothing to tell you whether $40k will support your lifestyle and/or leave enough surplus for unexpected needs. Hence why you also need a budget or alternately the discipline to live within the income.
I’d suggest it is wise to at least think about financial strategy in weathering unexpected needs. But it doesn’t need to negate the overall drawdown strategy – for some it might be drawing at only 3.5%, for others maintaining a cash-like emergency fund or being prepared to sell a second home or whatever.
My approach is to have a notional “when it’s gone, it’s gone” pot to cover lumpy one-off spend. Then I top it up from excess from my planned drawings or if it goes, replenish by paring back lifestyle spending a bit. Some people might need to see that as a physically separate fund/account. That’s personal choice (possibly for those allergic to spreadsheets/budgeting 😉 ) and largely just accounting presentation.
When my daughter was a baby, I used to walk with her to the supermarket and carry home two bags of groceries (that’s what I could carry with her) for a cost of $30 to $35.
Thirty years later, those same two bags of groceries cost $60 to $70, and sometimes more.
During this period, my partner and I each had substantial increases in salary. Over the thirty years, hers increased 4x to 5x. Mine increased 2x. I kept up with inflation; hers exceeded inflation. But in retirement, we will both have substantial cuts to income and it looks like the income retirement accounts generate will only be enough to keep up with inflation. Yet we will have to withdraw capital.
Inflation is a very serious concern.
That’s the format of an old joke. Kids must be much stronger than when I was small years ago. When I was a kid, it was really hard for me to carry $70 worth of groceries. But these days, my young grandson seems to have absolutely no problem with that.
Excellent article R Quinn. Always a good idea to think about inflation, the killer of all investments. For me the only way to beat it, is to invest in the S&P 500. Fortunately for me, that has worked out very well over the last 60 years, and I plan to keep it that way. The S&P has nicely beat inflation over those many years.
If SSA was able to adjust for inflation in realtime, that would ease the burden (or the perception of a burden) of inflation. But the COLA change occurs the following year. The inflated expense is out the door, and the inflated reimbursement comes a year later. The time lag between outflow and resolution weighs on people.
As our representatives in Washington continue to ignore the coming shortfall in SS funding, can we continue to assume that SS payments will never be cut? If one is trying to decide when to start collecting, don’t you need to try to account for this too?
Furthermore, if one believes a cut is forthcoming, doesn’t it put the stated projections in doubt? Conversely, if one believes there will be no cuts, doesn’t there have to be a significant change in taxes?
I’d be curious to read how one should plan for retirement considering the plight of SS funding.
I still maintain there will not be a cut and also that no changes to make the fix during this administration for several reasons I won’t go into here.
However, that means there will only be 4-5 years for any changes to generate sufficient revenue by 2032-33 to keep full benefits being paid. To me that means some pretty dramatic revenue changes in a short time.
There is talk now of changing the application of the COLA in the future for higher income beneficiaries, – like capping it at the average paid to those collecting SS, but that is only part of the puzzle.
it seems to me that for higher income (yet to be defined) beneficiaries relying on SS COLAs in retirement will be problematic.
King Richard! Another thought producing article indeed!
SS is the greatest of my retirement incomes and I took distribution at the highest amount available, a late retirement. The current COLA is of that biggest amount.
But, of course the powers will probably want to limit it as you indicate.
Well, THEY, congress, doesn’t take SS and, THEY aren’t gonna be effected so….
A way I look at the inflation game and how to be OK with it is I consider a leaky wealth bucket. Income in at the top and expenses leaking out the bottom.
It’s easy to see that plugging a leak is the same as adding extra income.
Work to pay off any stupid payments for debts and your effective income magically increases.
Actually Congress has been covered by SS since 1993 and they are affected.
This from a quick search, Thank you for correcting me Sir!
===========================================
Yes—Members of Congress are covered by Social Security for their work as members of Congress (they pay Social Security taxes and receive Social Security benefits based on their covered earnings).
Their eligibility for Social Security is separate from their pension plan: they also participate in the Civil Service Retirement System (CSRS) or the Federal Employees’ Retirement System (FERS) for federal retirement, which is not Social Security.
I had a government employee who was a 1040 tax client back in 1984 when an earlier law change occurred that mandated all members of congress pay into the social system. See SS historical FAQ #5.
You’re right it was 1984. I was thinking of something else. My mistake.
Steve, “they” say not to worry, it would be political suicide not to fix the funding issues. Most of my brain agrees with that sentiment, still, there’s a little voice asking me, what if we’re wrong. So I think it’s wise to consider and plan for the ‘what if’. Doing so will provide a pleasant surprise if “they” are correct.
CPI measures changes in prices among a market basket of goods. No American buys that market basket of goods. And, of course, the market basket changes over time.
Fact of the matter is that inflation is an individualized calculation.
Americans whose spending is limited, and frugal Americans who limit their spending, adjust for inflation every time they go shopping. They do it almost unconsciously, if the price of beef looks to be “too much”, they buy chicken, or pork, or fish or go meatless. They migrate off of name brands to generic.
They look for alternatives and substitutions. They wait until something is on sale.
As a result, inflation is an individual calculation, because you and I, most Americans, adjust our individual “market basket” of goods as prices change.
So, 45 years ago, when Dan Rather announced on CBS nightly news that inflation was in double digits (change in CPI of 10.3% in 1981), Americans who watched the nighly news (lots of us) and others who read newspapers (lots of us) nodded our heads. We thought our inflation rate was 10+%, but it wasn’t.
Today, not so sure people even know the change in CPI for the last 12 months – 3.5% (June 2026). And, I am highly confident that they don’t know their own inflation rate – just that stuff costs more.
My favorite example of deflation in prices comes from my move to Houston Texas. On July 15th, 1982, my first full day there, I stopped at a U-Totem and filled up the gas tank of my 1980 Mazda 626. I paid $1.299 for a gallon. Yesterday, I stopped at Krogers here in Powell Ohio and paid $3.499 a gallon to fill up my 2009 Hyundai Elantra.
Looks like I paid more than twice as much. But, once you adjust for changes in average hourly income over that period (360%, per BLS) and the difference in mileage per gallon (a 40% improvement for my cars), I am paying less, much less per mile driven compared to 1982.
The Fed used to have tool where they would send an e-mail once a month with your personal inflation. I used to receive it and then it just stopped coming. I thinking it was the Philadelphia Fed, but not sure.
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.
Thanks for sharing the article, Jack, it was easy to read and helpful to me. Chris
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?
I no longer trust my government not to change the rules – like they did with SALT- and so having the money in my hot little hands, to invest and spend as I please feels empowering. Not sure of the total numbers, 500K sounds high. I stopped working at 55 and did lots of Roth conversions. Took SS at 64 and invested most of it. I was always very thrifty and a few severance packages helped but it worked better than I could have dreamed. I feel less vulnerable if they reduce SS, means test it, tax more-whatever. Wish I could do the same with Medicare. We are living in less certain times.
I’m with Dan on this. I don’t understand the choice. Are you saying that by claiming a full PIA at 67, a SS claimant could save up $500K by 70? That would require $166,667 per year – net of taxes. The maximum SS benefit in 2026 is $49,824. In 3 years, after taxes, you would have about $100K, as Dan said below. Where does the $500K come from?
I would guess the $500K amount comes from your 15 years (?) of collecting SS – your’s and your wife’s spousal benefit. But had you waited 4 years to collect a 32% higher benefit, wouldn’t you then have saved 11 years of a 32% higher amount as well as your wife’s spousal benefit? Ignoring COLAs, in 15 years you would have saved 15 times your PIA. In 11 years of a maximum benefit you would have saved 11 x 1.32 x PIA, or 14.52 time your PIA. Your wife’s spousal benefit would have accumulated 15 *0.5 =7.5 PIA. In eleven years this would be reduced to 5.5 PIA, so the totals are 22.5 times PIA claiming at FRA, or 20.2 PIA by delaying, or 89%. Using your $500K example, you would have accumulated $445K. But you would also have a 32% greater survivor benefit, with the corresponding higher COLA dollar amount. Isn’t this a much more rational comparison?
The $500k comes after 17 years of growth and reinvestment. The interest we now earn is twice as much as if my current gross SS monthly benefit was 24% higher than it is.
I guess a big factor is how much SS represents of total income. Between pension survivor options, life insurance and accumulated investments, the extra SS survivor benefit possible is not significant, plus Connie is 4-1/2.years older than I am.
You’ve made this statement before and it still confuses me. First, I thought you claimed at an FRA of 66, so the max benefit would be 32% higher, not 24%. That would be more like 2/3 instead of a half.
More importantly, I can’t see why you would compare the interest on a 17 year accumulation to the 32% larger SS benefit. If you had delayed from 66 to 70, wouldn’t you have then saved the 32% larger benefit for 13 years? 13 years at 1.32 times your PIA is equal to 17 times your PIA. So by delaying, at this point you would have about the same $500K, the same interest on the $500K, plus a 32% higher primary benefit available for your survivor. What am I missing?
Dick, even among the (mostly) affluent contributors here at HD, I doubt there are very many who are able to invest 100% of their SS and just let it grow.
You have explained your process to me in the past, and I totally agree that your way, is the best way, for you.
In our case, we use SS as you use your pension, while 99% of our IRA and brokerage accounts continue to grow.
We stopped investing SS years ago.
Dick,
Was your ability to grow your assets mainly because you claimed Social Security early? To me it seems that is not the reason, but it was enabled because you have a large income source from a defined benefit pension as a result working for what, 40 years, at the same company, and becoming a high paid executive. Good for you, but most of us do not have a large pension.
Not early, but when I claimed I was still working and collecting a pension. Otherwise it would be unlikely we could have saved it all, but that stopped several years ago. My point was if a person can delay until age 70 presumably they don’t need SS until then so collect sooner and invest it until you do need it. Of course the tradeoff is a lower SS benefit for life vs accumulated assets that may or may not provide income to offset the lower SS benefit. The gamble also depends on how long the person lives past age 70. On the other hand, the invested funds are always available to someone.
I’m not selling the idea, just something I am happy with the result.
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%.
The cost was worth it and I don’t know what risk you refer to. And yes, like many others our SSA, even maximized, still provides less than half our income, but its reassuring to know that it is COLA protected. Its up to us to help mitigate the affects of inflation on the remainder.
The risk in my view is not living to seventy or only a short period after age 70.
My wife and I reached FRA within a few months of each other, and my eligible benefit was larger. The gap widened by age 70. In my opinion, we cannot avoid risks, but we can manage them. We can estimate our life span, but of course we never really know. If I passed early, my wife’s check would be replaced by my larger one. Have you considered a different risk, namely that if one or both of us live to 100, will our portfolio last that long? Boosting our life-long, COLA protected SSA checks is a sort of longevity insurance. This is the lesson of Pascal’s Wager; that is besides focussing on probabilities of outcomes, consider their impact. For us, it was the right decision.
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.