Despite a decrease in price growth, inflation continues to disrupt retirement plans.

• Inflation rates have decreased since their 40-year high in June 2022.
• But retirees and near-retirees are still feeling the pinch of higher price growth.
• Here's how inflation is upending their retirement plans.

Despite the decrease in inflation rate from its 2022 high, retirees and those approaching retirement are still experiencing the impact of the price increase.

New research from Prudential Financial suggests that many people are reevaluating their retirement plans.

This spring, the firm surveyed 905 Americans aged 55, 65, and 75 and found that 43% of 65-year-olds have postponed their retirement due to inflation, while one third of 55-year-olds are considering pushing off their retirement dates.

A majority of 55-year-olds surveyed, 48%, plan to work part-time in retirement, while a smaller percentage of 65-year-olds and 75-year-olds, 25% and 13%, respectively, made the same decision.

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A recent AARP survey revealed that 26% of people aged 50 and above who are not yet retired do not anticipate ever retiring.

Savings shortfall increases financial insecurity

A majority of older respondents to Prudential's survey expressed concern about outliving their savings, with 67% of 55-year-olds, 59% of 65-year-olds, and 52% of 75-year-olds sharing this worry.

According to Feeney, CEO of Prudential's U.S. business, the age 55 cohort is the "least confident" about their retirement readiness, as stated in a Thursday presentation of survey results.

According to Prudential, 55-year-olds are facing a significant savings shortfall, with a median savings balance of $47,950 towards retirement, which is far below the recommended balance of $446,565, calculated as eight times the average U.S. salary.

"Feeney stated that this is the first group retiring with largely no pensions, adding to their financial insecurity as they are uncertain about the full support of Social Security."

Lower Social Security COLA forecast for 2025

Unlike other sources of retirement income, Social Security benefits are automatically adjusted for inflation annually.

With inflation slowing, retirees may face a lower cost-of-living adjustment from Social Security next year.

An independent Social Security and Medicare analyst, Mary Johnson, predicts that the cost-of-living adjustment for Social Security may be 3% in 2025.

Although beneficiaries received a 3.2% Social Security cost-of-living adjustment this year, resulting in an average retirement benefit increase of $50 per month, this was lower than the record high adjustments of 8.7% in 2023 and 5.9% in 2022.

The Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, is used to determine Social Security's annual adjustments.

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Despite some categories experiencing high inflation rates, others, such as food and services, continue to see elevated rates of inflation.

The CPI-W is used to calculate Social Security's COLA annually, but some argue it may not accurately measure retirees' costs.

According to Johnson, while the CPI-W estimates that older adults allocate approximately two-thirds of their income towards housing, food, and medical expenses, in reality, these expenses account for roughly three-quarters of their budget.

Johnson stated that the difference implies that his COLA estimate, which relies on the CPI-W, might be underestimating actual senior inflation by more than 10%.

The Senior Citizens League predicts that the COLA for 2025 will be approximately 2.6% based on recent inflation data.

The difference in COLA estimates is caused by varying techniques used to derive the calculations.

Johnson stated that if inflation persists in decreasing, her COLA estimate may decrease further.