I'm Not Counting on Social Security COLAs to Carry Me Through Retirement. Here's What I'm Doing to Combat Inflation Instead

There's a reason Social Security benefits are eligible for an automatic cost-of-living adjustment, or COLA, each year. Without one, benefits would be practically guaranteed to lose buying power over time due to inflation.

But while Social Security COLAs help avoid that scenario to some degree, they've been said to ultimately fall short. A 2024 analysis by the nonpartisan Senior Citizens League found that Social Security benefits lost 20% of their buying power between 2010 and 2024. Insufficient COLAs are largely to blame.

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For this reason, I refuse to depend on Social Security COLAs to carry me through retirement. Instead, I have my own plan to tackle inflation.

The problem with Social Security COLAs

Social Security COLAs are calculated based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But a quick glance at the name of that index is all that's needed to understand why the CPI-W is an imperfect measure for COLAs.

The typical Social Security recipient is not an urban wage earner or clerical worker. Rather, they're a retiree.

This isn't to say that nobody on Social Security continues to work. The program does allow workers to earn money from a job and collect benefits, albeit with earnings-test limits that are applied to recipients who haven't reached their full retirement age yet.

But for the most part, it's pretty fair to generalize Social Security recipients as non-workers. That makes the CPI-W a poor benchmark for determining the extent to which benefits get to rise from year to year.

My personal plan of attack

I don't expect inflation to magically go away during my retirement. In fact, some level of inflation is not only expected, but perfectly acceptable. The Federal Reserve, for example, deems 2% annual inflation ideal.

But let's not kid ourselves. Over time, 2% inflation can erode the buying power of Social Security benefits. To get around that, I plan to load up on investments that have the potential to beat inflation.

Retirees are often advised to be cautious with stocks, due to the potential for volatility. But I intend to keep a portion of my portfolio in stocks for the growth possibilities. If the stock portion of my portfolio delivers a 7% average annual return, which is below the stock market's historical average, that buys me a decent cushion to outpace rising living costs.

I also intend to invest in assets that pay me on a regular basis in retirement. These include dividend stocks and a variety of bonds. That ongoing income can serve as a supplement to Social Security and make up for COLAs that don't stand up well to inflation.

All told, it would be nice if lawmakers considered a change in the way Social Security COLAs are calculated. Until that happens, it's important to have a plan to beat inflation in retirement, or at least keep up with it -- and that plan shouldn't hinge on sitting back and waiting for your annual Social Security COLAs to arrive.

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