The 2.5% cost-of-living adjustment (COLA) announced by the Social Security Administration (SSA) in October will likely provide some relief for retirees, but it’s not enough to cover rising inflation. A recent survey of 3,000 older Americans found that 70% are worried about depleting their retirement savings despite increased benefits.
The Consumer Price Index (CPI) shows a 2.6% year-over-year increase, exceeding the 2025 COLA. Healthcare costs, in particular, rose 3.7%, which is a concern for seniors who spend more on healthcare than younger individuals.
The root cause of the problem lies in how Social Security COLAs are calculated using the CPI-W. This metric often underestimates inflation’s impact on seniors due to its weightage on healthcare expenses. As a result, retirees’ benefits have lost over 30% of their buying power since 2000.
To address this issue, replacing the CPI-W with the Consumer Price Index for the Elderly (CPI-E) or using both metrics could ensure that annual COLAs keep pace with higher prices incurred by retirees. However, previous attempts to pass Social Security reforms incorporating the CPI-E have failed, and it’s unclear whether these changes can be implemented without increasing Social Security’s cash outflows.
Potential solutions for preventing future benefit cuts are being explored, but none have gained sufficient support on Capitol Hill yet.
Source: https://www.fool.com/retirement/2025/01/11/theres-a-big-problem-with-the-2025-social-security