How Inflation Is Causing People To Change Their Retirement Plans
Inflation may have backed off a tad recently, but, according to a story by CNBC, its lingering effects are impacting many people’s retirement plans. A growing number of people are delaying retirement or saying they will never be able to stop working.
The article cites a survey by Prudential Financial that found 43% of 65-year-olds have postponed their retirement because of inflation and one-third of 55-year-olds are considering pushing back their retirement dates. A similar study by AARP discovered that 26% of people age 50 and older and not yet retired say they never expect to retire.
Social Security Solvency
One of the big reasons for these decisions is financial insecurity stemming from uncertainty about Social Security. Not surprisingly, people find it hard to think about retiring when they are questioning whether Social Security will fully be able to support them. Everyone knows that the trust fund is facing a deficit and will no longer be able to pay all the promised benefits in about ten years.
Broken COLA Calculator
Inflation is also a factor. Social Security benefits are automatically adjusted for inflation each year, but the annual cost-of-living adjustment (COLA) is not keeping up with actual costs. It’s predicted the 2025 COLA will be even smaller than this year’s 3.2%.
Part of the problem is the way the cost-of-living adjustment is calculated. Currently, the Social Security COLA is based on the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for Q3 against the average for the same period in the prior year. The percentage increase (if any) becomes the COLA for the next year.
It’s a common belief that basing it on the CPI-W does a disservice to seniors. Senior advocates such as The Seniors Trust believe the Consumer Price Index for Americans 62 years of age and older (CPI-E) would be a better formula, as it more accurately reflects the costs incurred by older adults, especially related to healthcare and housing.
The Social Security Expansion Act calls for adopting the CPI-E. Not only would this provide Social Security recipients with a fairer COLA, but this landmark piece of legislation also provides across-the-board benefits boost of about $2,400 per year and long-term Social Security solvency.
