Your Social Security Benefits Might Not Go As Far Thanks to Inflation

Retirees living on a fixed income from Social Security are often severely impacted by inflation. Rising prices can make it harder to keep up with the cost of everyday expenses like food, housing, and medical expenses.

If you are currently retired or preparing for retirement, here’s what you need to know about inflation, Social Security, and being prepared for rising costs in retirement.

What Is Inflation?

Inflation is a measure of how quickly prices for goods or services are rising. It reflects a loss of purchasing power, meaning the same amount of money can’t buy as much as it once did.

Inflation is measured by comparing the overall price level of the goods and services in the whole economy from one period to the next. There are many different measures of inflation. The most commonly reported ones are the consumer price index (CPI) and the personal consumption expenditures (PCE) index.

The impact of inflation on retirees can be especially challenging, as retirees are no longer earning wages and living on a fixed income.

Cost of Living Adjustments (COLA) for Social Security

To account for the impact that inflation has on retirees, Social Security benefits have an annual cost-of-living adjustment, or COLA, which raises the value of your monthly benefit based on the inflation rate. The rate is calculated by using the CPI-W, or the the Consumer Price Index for Urban Wage Earners and Clerical Workers.

The COLA is typically announced in December and is a measurement of the change in the CPI-W from the third quarter average of the previous year to the third quarter average of the current year. If there is an increase, it’s rounded to the nearest tenth of a percent. If there is no increase, or if the number rounds to zero, there is no COLA adjustment.

Yet because this method of measuring inflation is based on the year-over-year inflation rate for the previous year, the COLA may not accurately reflect the cost of living for the upcoming year, especially if prices continue to rise.

Planning Beyond Social Security

Inflation can quickly erode retirees’ standard of living. If your Social Security benefits represent all of your retirement income, it may be more difficult to afford necessities like food and housing.

According to AARP data, at least 40% of retirees rely on Social Security payments for half or more of their income. To make up the difference, many retirees end up working part-time.

“Part-time work can be a fulfilling part of planning for retirement if you consider what you want to do with your time,” suggested Jamie Kertis, CPFA, a financial advisor with Everthrive Financial Group.

Other retirees end up striking out on their own to generate additional income.

“If having a part-time job that requires a commitment to a schedule doesn’t sound appealing to you, then you may be able to generate additional income by using your skills and abilities on a schedule that you determine,” said Kertis.

You could try to to opt for a side hustle like childcare, tutoring, or selling goods online that allow you to build your own schedule and often don’t require much infrastructure or funding to start up.

If you’re not retired yet, however, Kertis recommend doing the following to generate income from other sources besides Social Security:

• Build an emergency fund: Set aside three to six months of living expenses so you can be prepared for emergency expenses without taking on consumer debt.
• Use tax-advantaged accounts: If you have access to a retirement account through work, contribute enough to receive your employer match if you receive one. Beyond that, if you don’t have an employer-sponsored account, you can open a tax-advantaged IRA—like a traditional or Roth, to save on your own.
• Maximize contributions: In 2025, IRAs have an annual contribution limit of $7,000 while 401(k)s have an individual contribution limit of $23,500.And if you’re over the age of 50, you’re eligible to make catch-up contributions, which allow you to put away even more. You can put an additional $1,000 into an IRA and an additional $7,000 into a 401(k).
• Budget for healthcare expenses: Healthcare costs often increase as you age and healthcare inflation typically outpaces general inflation, so be sure to account for theses costs when forecasting your monthly and yearly expenses.
• Audit your lifestyle: Look at your current living arrangements to find ways to reduce expenses leading up to and in retirement. Do you need to downsize your living situation? What are your exercise and travel habits? Do you live close to family or friends who can provide assistance as you age?

“It is essential to consider not only the financial side of retirement, but also the emotional and practical aspects,” said Kertis. “What will you be doing in retirement? Traveling, gardening, fishing, babysitting? By visualizing your retirement, you may be able to better determine how much you need to save.”

The Bottom Line

Managing expenses in retirement becomes more complicated when you account for the impact of inflation. That’s because rising prices can hit retirees harder than those in the workforce, especially those who rely on Social Security as their primary source of income.

Planning in advance to generate other sources of income—such as by investing in tax-advantaged retirement accounts or taking on part-time work in retirement—can reduce inflation’s impact.