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The shortage of savings increases financial uncertainty
Many respondents to Prudential's survey say they fear they will outlive their savings. That includes 67% of 55-year-olds; 59% of 65 year olds and 52% of 75 year olds.
The 55-year-old cohort is the “most financially insecure” about their retirement readiness, Caroline Feeney, CEO of Prudential's U.S. business, said during a Thursday presentation of the survey results.
That's because 55-year-olds face a major savings gap, with an average savings of $47,950 for retirement versus the recommended balance of $446,565, based on eight times the average U.S. salary, according to Prudential.
“This is the first group to retire, [with] largely no pensions,” Feeney said. “And then there's the added feeling of additional financial uncertainty because they're not quite sure whether Social Security will be there to fully support them.”
Lower Social Security COLA forecast for 2025
Unlike most other sources of retirement income, Social Security benefits automatically adjust for inflation each year.
While current retirees continue to feel the pressure of higher costs, slowing inflation points to a lower Social Security cost-of-living adjustment next year.
Social Security's cost-of-living adjustment could reach 3% by 2025, estimates Mary Johnson, an independent analyst of Social Security and Medicare.
Social Security's annual adjustments are based on a particular measure of inflation: the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
The latest figures for May show that the CPI-W has risen 3.3% compared to a year ago.
However, certain categories – including food and services – still experience high inflation.
Although the CPI-W is used each year to calculate Social Security's COLA, some argue that it may not be the best metric to accurately measure retiree costs.
For example, while the CPI-W assumes that older adults spend about two-thirds of their income on housing, food and medical costs, these items actually make up about three-quarters of their budget, according to Johnson.
“This disparity suggests that my COLA estimate, which is based on the CPI-W, may underestimate real senior inflation by more than 10%,” Johnson said.
Another estimate from The Senior Citizens League points to an even lower COLA for 2025: almost 2.6% based on the most recent inflation data.
The discrepancy between the COLA estimates is due to different methods used to arrive at the calculations.
If inflation continues to decline, Johnson says her COLA estimate could be even lower.
