May 2nd 2024.
As retirees eagerly anticipate their annual cost-of-living adjustment, or COLA, they may be in for a disappointment. According to preliminary forecasts by economists, the expected increase may actually decrease due to economic instability and inflation. This news is causing great concern among the 71% of retirees who already feel financially unstable due to rising costs of goods and supplies.
Craig Copeland, the Director of Wealth Benefits at the Employee Benefit Research Institute (EBRI), shared that both workers and retirees have experienced a significant decline in their confidence to finance their retirements. This decline is comparable to the one seen during the 2008 global financial crisis. In fact, 58% of retirees have already started cutting down on nonessential spending in response to economic uncertainty.
One factor contributing to this financial strain is the way COLAs are calculated. The Social Security Administration uses the average inflation rate during the third quarter to determine the adjustment. However, this calculation is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, which is a subset of the more well-known CPI-U. This method has resulted in notable fluctuations, such as the significant 8.7% increase seen in 2023.
With the rising cost of living, many retirees are finding it difficult to make ends meet and are even resorting to returning to the workforce, often in physically demanding part-time jobs, to earn extra income. This struggle is particularly prevalent among Black retirees, with 57% of Black households experiencing financial strain and older Blacks facing a higher likelihood of having to return to work compared to other racial and ethnic groups.
To make matters worse, a study by the Economic Policy Institute revealed that Black workers are less likely to have access to employer-based retirement plans compared to their white counterparts. This lack of access is a major factor contributing to the low participation rates in retirement plans among older workers. As we await the finalization of the COLA for 2025, it's clear that retirees, especially those from marginalized communities, are facing significant challenges in securing their financial stability during retirement.
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