Most people are pleased with the decrease in inflation, but Social Security recipients have mixed feelings about it.
In May, the annual inflation rate dropped to 4%, marking the smallest increase since March 2021 and a significant drop from the peak of 9.1% in June of the previous year. The decline was primarily driven by an 11.7% decrease in energy prices, which helped keep overall prices in check. Although the rate of food inflation has slowed, it still rose by 6.7% over the past 12 months. Housing costs, including rents, increased by 8%, contributing to upward pressure on inflation.
While investors reacted positively to the decline in inflation and boosted stock prices, Social Security beneficiaries may not be as thrilled. The cooling inflation rate translates to a lower cost-of-living adjustment (COLA) of 2.7% for the next year, as forecasted by The Senior Citizens League, a nonprofit organization advocating for seniors. This represents less than one-third of the 8.7% COLA observed in 2023, which was a four-decade high. It is also below last month’s estimate of a 3.1% increase for 2024. However, it is important to note that a decrease in inflation does not necessarily make a lower COLA acceptable.
According to an ongoing survey conducted by The Senior Citizens League with 2,275 respondents until June 6, older consumers have reported minimal improvement in their household spending. Mary Johnson, a Social Security and Medicare policy analyst at The Senior Citizens League, explained that seniors allocate their money differently, with a majority spent on housing, food, transportation, utilities, and healthcare. Unfortunately, the costs of these essential categories are still rising rapidly. The May inflation report indicated an 8% increase in shelter costs over the past year, a 6.7% rise in food prices, a 10.2% jump in transportation services, a 5.9% surge in electricity costs, and a 4.4% increase in medical care commodities, including prescription and nonprescription drugs, equipment, and supplies.
In the survey conducted by The Senior Citizens League, 62% of the respondents identified food costs as their fastest-growing expense, while 22% expressed concern over housing costs. Seniors are also grappling with the impact of high inflation in 2021 and 2022.
The purpose of annual COLAs is to ensure that Social Security beneficiaries’ purchasing power remains intact despite inflation. However, the COLA has not kept up with rising costs, leading to an increase in poverty among seniors between 2020 and 2021, according to the Census Bureau. Even though this year’s inflation rate is lower than the 8.7% COLA received by beneficiaries, they have been unable to recover the losses incurred during the peak inflation period of 2021 and 2022. On average, Social Security benefits fell behind by $1,054 during that time, leaving 53% of retirees skeptical about their ability to catch up, as their household expenses outpaced the dollar amount of their COLAs.
The COLA calculation is based on the average annual increase in the consumer price index for urban wage earners and clerical workers (CPI-W) from July through September. Although the CPI-W closely mirrors the broader CPI released monthly by the Labor Department, there are slight differences. Last month, while the CPI rose by 4.0%, the CPI-W increased by 3.6%. The Seniors Citizens League utilizes the most recent inflation data to project the upcoming COLA.
Approximately 70 million Americans receive benefits from programs administered by the Social Security Administration (SSA), with retired workers and their dependents accounting for 76.9% of the benefits paid
Written by Jarred Politarhos