Rising Inflation Causes Retirement Plan Changes, Social Security Adjustments Expected

Inflation subsides, yet retirees delay retirement due to financial insecurity, expecting lower Social Security adjustments in 2025 amid ongoing inflation concerns.

As of recent findings, the effects of inflation have been felt by retirees and near-retirees, leading to significant adjustments in their retirement plans. The latest research conducted by Prudential Financial reveals that a substantial percentage of individuals are reconsidering their retirement timelines due to the surge in prices.

From the survey, it is evident that 43% of 65-year-olds have chosen to delay their retirement due to inflation. Additionally, one-third of 55-year-olds are contemplating pushing back their retirement dates. The research, which involved 905 Americans ranging from 55 to 75 years old, showcases the extent of the impact of inflation on retirement decisions.

Work Plans in Retirement

A noteworthy discovery from the survey is that 48% of 55-year-olds plan to work part-time during retirement. Moreover, 25% of 65-year-olds and 13% of 75-year-olds expressed similar intentions. This trend indicates a shift in the traditional concept of retirement, where individuals are now planning to continue working to mitigate the financial impact of inflation.

Financial Concerns and Insecurities

The survey findings coincide with a separate AARP survey, which revealed that 26% of people aged 50 and above do not anticipate retiring. Many respondents from the Prudential survey expressed concerns about outliving their savings. Specifically, 67% of 55-year-olds, 59% of 65-year-olds, and 52% of 75-year-olds share worries about the adequacy of their savings for retirement.

According to Caroline Feeney, CEO of Prudential's U.S. business, 55-year-olds are the "most financially insecure" group in terms of retirement readiness. This demographic faces a significant savings shortfall, with a median retirement savings of $47,950, compared to the recommended balance of $446,565. The absence of substantial pensions and concerns regarding the reliability of Social Security contribute to their financial insecurity.

Social Security and Inflation

While Social Security benefits are adjusted for inflation each year, the current trend of slowing inflation could lead to a lower cost-of-living adjustment (COLA) for Social Security in 2025. Estimates suggest that the COLA may decrease to 3% next year, following previous adjustments of 8.7% in 2023 and 5.9% in 2022. This adjustment is based on the consumer price index for urban wage earners and clerical workers (CPI-W), which may not accurately represent retirees' actual expenses.

Experts have raised concerns about the accuracy of using the CPI-W to calculate COLA for retirees, highlighting that it may underestimate real senior inflation by more than 10%. The disparity in calculations has led to varying estimates of the 2025 COLA, with projections ranging from 2.6% to 3%. Depending on the trajectory of inflation, these estimates may be subject to further adjustments.

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