Inflation's Disproportionate Impact on Fixed-Income Retirees
Hi Everyone. In this post, we'll discuss why inflation hits seniors on fixed incomes harder than the general population, and how policy has tried to respond.
The Basics of Fixed Income
Most retirees have at least one income stream that does not automatically increase year-over-year. That’s what “fixed income” means. You may receive raises at work from time to time, but your pension, IRA withdrawals, or annuity payments probably will not increase just because the cost of living does. That’s why annual inflation is so crucial for seniors. While most Americans can tighten their belts when prices rise, retirees may not have that option.
How the COLA Is Supposed to Help
The COLA is meant to increase benefits to keep pace with inflation. The Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate COLAs. Read: Understanding CPI-W and how it impacts Retirees Every year, the CPI-W calculates the cost of a basket of goods and services that urban wage earners commonly purchase. If that basket of goods increases in price, then benefits increase by a similar percentage. For example, this year, seniors will see a 5.9% COLA. The last time COLAs were this high was in 1991.
Why the Index Falls Short for Seniors
The primary concern about this measure is that CPI-W doesn’t accurately capture the spending habits of retirees. For example, retirees spend more money on medical care than the average urban worker. Since healthcare costs tend to rise faster than inflation, COLAs often do not keep pace with reality.
What Can Seniors Do?
Unfortunately, there is not much that seniors can do about the rising cost of living. Most retirees are on a fixed income, so they cannot ask for a raise. Even with COLAs, retirees may experience a period where their income does not keep pace with inflation. As a result, retirees may have to make hard choices between essentials like food, medication, and housing. They may also delay necessary medical care, which will only cost them more in the long run. Knowing these struggles can help our communities better advocate for seniors.
References
Congressional Research Service, "Social Security Cost-of-Living Adjustments and the Consumer Price Index." https://www.congress.gov/crs_external_products/IF/HTML/IF12675.web.html
National Committee to Preserve Social Security and Medicare, "The CPI-E: A Better Option for Calculating Social Security COLAs," November 5, 2024. https://www.ncpssm.org/documents/social-security-policy-papers/the-cpi-e-a-better-option-for-calculating-social-security-colas/
The Senior Citizens League, "COLA Watch," 2026. https://seniorsleague.org/cola-watch/
The Motley Fool, "Social Security Uses a Flawed Inflation Formula for Retirees — but Right Now, It Doesn't Matter Much," August 1, 2026. https://www.fool.com/retirement/2026/08/01/social-security-uses-a-flawed-inflation-formula-fo/
