Hidden Threat to Social Security: How Loss of Buying Power Could Cost Retirees $4,440 Per Year - Strategies to Mitigate Risks and Plan for Retirement

Social Security is a vital lifeline for millions of Americans, keeping around 16 million seniors out of poverty each year. However, the program is facing some major challenges that could cost retirees thousands of dollars per year.

One of the biggest threats to Social Security is the loss of buying power. According to a 2024 report from The Senior Citizens League, Social Security has lost around 20% of its buying power since 2010. This means that the average retired worker, who currently receives around $1,860 per month in benefits, would have received $2,230 per month if benefits had maintained their buying power. That's a difference of $370 per month, or $4,440 per year.

This loss of purchasing power appears to have been worsening in recent years. Between 2010 and 2024, there have only been five years in which the cost-of-living adjustments (COLAs) outpaced the inflation rate for that year. Between 2020 and 2024, just one COLA managed to beat inflation.

Another concern is the possibility of benefit cuts. According to the Social Security Board of Trustees' 2025 report on the state of the program, the two trust funds are expected to run out by 2034, one year sooner than estimated last year. Once those funds are depleted, the program's income sources are only expected to cover around 81% of scheduled benefits, which is down from 83% last year. This means that by 2034, benefits could potentially be slashed by around 19%.

To be clear, this doesn't mean that cuts are guaranteed to happen. Lawmakers could find a solution before 2034 to avoid cuts and potentially even help Social Security regain its lost buying power. However, until that plan is in place, it may be a good idea to develop a backup plan.

If you're not yet retired, increasing your savings even slightly can help reduce your dependence on Social Security. Investing $200 per month at an 8% average annual return can amount to close to $35,000 after a decade. For the average retiree, that's equal to roughly 18 months' worth of benefits.

Delaying claiming benefits is another option. The average retiree collects around $807 more per month at age 70 than at 62, according to 2024 data from the Social Security Administration. Even if you can only delay benefits by a year or two, that could boost your payments enough that potential cuts and loss of buying power won't sting quite so much.

Social Security may be facing challenges, but that doesn't mean it's going away entirely. Even if the trust funds run out and benefits lose more buying power, retirees can still rely on their payments to some extent. That said, by taking steps now to reduce your dependence on your benefits, you'll be more prepared no matter what the future may hold.

In conclusion, while Social Security remains an essential safety net for millions of Americans, it is facing significant challenges that could affect retirees' financial security. It is crucial for individuals to take proactive steps to reduce their dependence on Social Security and plan for their retirement accordingly. By increasing savings and delaying benefit claims, individuals can better prepare for potential changes in the program and ensure their financial stability in retirement.