Retirees Are Struggling as Social Security Benefits Shrink

Retirees have been significant contributors to consumer spending in 2023, buoyed by a substantial increase in Social Security. However, this trend might see a slowdown as the cost of living adjustment (COLA) decreases this year. 

Record Hike in COLA

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In 2023, Social Security beneficiaries saw an 8.7% increase in COLA, the highest in four decades. This adjustment significantly boosted spending among older adults.

A Diminishing Impact

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Despite this increase, the COLA for 2024 is projected to be just 3.2%. Experts anticipate that the impact on retirees’ spending power will lessen as a result.

Comparison With Inflation

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The 2023 COLA surpassed the inflation rate, providing retirees with extra spending power. However, the 2024 adjustment aligns closely with expected inflation rates.

Diverse Income Sources

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Retirees often have multiple sources of income, including pensions, allowing their spending to remain relatively strong despite COLA reductions.

Generational Spending Patterns

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Data indicates that older generations significantly outspent their younger counterparts in 2023, with baby boomers and the silent generation leading in credit- and debit-card spending.

Asset Distribution

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Baby boomers held around $80 trillion in assets in the second quarter of 2023, far surpassing the $14 trillion held by millennials.

Drawing Down Savings

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Baby boomers have been withdrawing from their savings and checking accounts more slowly than younger generations, potentially indicating more available funds for future spending.

Spending Out of Necessity

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Despite increased spending, analysts suggest that older adults may be spending more out of necessity due to rising prices rather than discretionary spending.

Healthcare and Home Repairs

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Some spending may be attributed to delayed medical treatments and home repairs that were postponed during staffing shortages in previous years.

Impact of COLA on Beneficiaries

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The 8.7% COLA resulted in an average increase of $146 per month for beneficiaries, while the 2024 adjustment is estimated to be around $50 a month.

Survey on Spending Habits

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A survey by the Senior Citizens League found that 45% of older respondents spent less than $2,000 a month, 37% spent between $2,000 and $3,999, and 15% reported spending $4,000 or more.

Reliance on Social Security

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Approximately 40% to 44% of seniors depend entirely on Social Security for their income, primarily spending on essentials such as housing, healthcare, and groceries.

Sustainability Concerns

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Analysts are concerned about how long retirees can maintain this level of spending without depleting their savings.

Future Financial Health

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Bank of America predicts a decline in older generations’ assessment of their financial health in six months, while younger generations have more positive expectations.

Spending to Narrow

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Despite the anticipated decrease in COLA, Bank of America suggests that retirees will continue to outperform other age groups in spending, albeit by a narrower margin.

The Road Ahead

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The decrease in COLA may lead to a reduction in retirees’ spending growth. The continued observation of these trends will be crucial to understanding the broader economic impacts.

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The post Retirees Are Struggling as Social Security Benefits Shrink first appeared on Thrift My Life.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.