The COLA Adequacy Argument and Retirement - yahoo.finance; Investopedia; AMAC
The annual cost-of-living adjustment (COLA) applied to Social Security benefits is intended to maintain at least some degree of financial stability for seniors in their retirement years. Good intention, but does it succeed? Many sources suggest it does not meet that objective, as inflation routinely outpaces the costs this population segment faces.
One organization more vocal on this issue is The Senior Citizens League (TSCL), whose polling recently indicated that 90% of its site visitors report the 2026 COLA will cause their benefits to lag inflation. In fact, TSCL has consistently reported that “soaring inflation has caused Social Security benefits to lose 40% of their buying power since the year 2000,” a statistic of extreme concern to those below or near the federal poverty line.
What are some seniors doing to combat inadequate COLAs?
In a post today on yahoo.finance.com, Investopedia personal finance reporter Elizabeth Guevara notes, “About four in ten Social Security beneficiaries are still working, with the majority having a part-time job.” Her article goes on to submit that, “Experts have said that Social Security benefits are not keeping pace with retirees’ rising expenses, leading many to cut their spending or return to work.”
Ms. Guevara covers commentary from a recent study by the Center for Retirement Research at Boston College. She explores the types of employment held by those remaining (or rejoining) the workforce after claiming benefits and discusses the motivation — specifically, stretched finances — behind 36% of beneficiaries occupying full-time employment after claiming benefits.
The Social Security Retirement Earnings Test
Ms. Guevara touches briefly on Social Security’s “Retirement Earnings Test,” a rule that, for those who claim benefits before their full retirement age, “… discourages full-time work because it reduces benefits.” The Social Security Retirement Earnings Test severely limits the ability of early retirees to earn income without having their benefits reduced. Because of this provision, many older Americans are forced out of the workplace when they would otherwise continue contributing to payroll tax revenue. Removing this provision would allow early retirees to increase their earnings while continuing to receive Social Security benefits.
Administration of the earnings test is overly complex, resulting in an extraordinary amount of clerical effort to track. The reporting and verification processes place a substantial recordkeeping burden on workers and Social Security Administration staff and often contribute to the overpayments so frequently highlighted in the media. Likewise, for those who elect to file early, it is frequently a surprise that affects cash flow planning in retirement, especially among those intending to use the extra income to bolster their savings for later years.
From a Social Security revenue perspective, limiting retirees’ earnings reduces payroll taxes, thereby exacerbating the program’s financial problems. Eliminating this provision would encourage workforce participation and allow retirees to earn more and pay more into the program via FICA taxes. Proposals calling for elimination of this provision have been submitted to Congress (e.g., “Senior Citizens’ Freedom to Work Act of 2019”), but no action has been taken.
As Congress grapples with Social Security’s deteriorating financial picture, this item — although relatively small in the overall picture — may resurface.