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Social Security benefits are supposed to be one of the most stable income sources that retirees have. Since you contribute to Social Security throughout your working life, you earn benefits that are equal to a percentage of your average wage. Your benefits replace around 40% of pre-retirement earnings, and the money is guaranteed to keep coming to you as long as you are alive.
The good news is, you don’t have to worry about saving, investing, or choosing a safe withdrawal rate to get these Social Security benefits and make them last. Unfortunately, though, there is some bad news too. The value of these benefits is declining, the decline is likely to continue, and it could cause serious ongoing financial struggles for those who are relying on Social Security as a main source of their retirement funds.
With the value of Social Security benefits going down, it’s important to find ways to supplement these benefits with extra guaranteed income. There’s a simple way to do that, which you should consider if you’re worried about having Social Security as your only stable income source, given its declining buying power.
Here’s why the buying power of Social Security benefits is declining
Social Security’s buying power has actually declined by a much more substantial amount than you might think, especially given that Cost of Living Adjustments (COLAs) are built into the program and designed to stop buying power from being reduced.
The Senior Citizens League reported recently on just how far the value of benefits has fallen, indicating that in 2024, the average monthly Social Security payment was only worth $0.80 on the dollar relative to the value of benefits in 2010. This reflects a 20% decline in how much benefits can buy for you. And, in order for you to break even and have the same buying power as the typical retiree did in 2010, benefits would have to increase by a shocking $4,442 per year.
While retirees are going to get a 2.8% raise in 2026, this loss is not going to be made up anytime soon. In fact, things are likely to keep getting worse over time, as the COLA formula used to calculate benefit increases has a major flaw. The problem is that the consumer price index used to determine how much each year’s annual COLA will be is based on the spending habits of urban wage earners and clerical workers instead of retirees.
CPI-W data from the third quarter is reviewed to see year-over-year price changes, and retirees are awarded a COLA equal to the average change. But the basket of goods and services that make up CPI-W doesn’t weigh healthcare or housing as heavily as it should, given how big a percentage of their income seniors tend to spend on these things. That’s a problem, given how fast prices tend to rise on these spending categories.
This huge flaw is the reason why benefits have lost so much buying power and why so many seniors are struggling with limited guaranteed income from Social Security. And, since the COLA benefit formula isn’t going to change, this problem is going to persist and potentially continue getting worse as inflation overall remains high.
Here’s how you can supplement Social Security with another guaranteed income source
If you want more guaranteed income, given the fact that Social Security benefits aren’t keeping up, an annuity is one key option available to you — and may be one of your only options if you don’t have a pension at work. You can get an annuity that provides income guaranteed for life, and that has protections for inflation as well. You just need to shop around and find the right one.
When you are looking at annuities, consider factors like premium costs, fees, surrender charges, and income produced each year. You should be able to find an annuity that is guaranteed to last, that adjusts wages up due to inflation, and that gives you the money you deserve to be financially secure as a retiree. Start looking ASAP so you don’t have to count on Social Security as your only steady income source, even as the value of the retirement benefits keeps falling.