Not sure how this is possible in a low inflationary environment when interest rates were kept near zero, but Social Security benefits have managed to lose 33% of their buying power since 2000, according to The Senior Citizens League (TSCL).
Spiking fresh food and prescription medicine costs deserve much of the blame, apparently.
The senior advocacy organization’s latest Social Security Loss of Buying Power Study released this month found that for roughly 10 million older Americans who have been retired since 2000, the buying power of their Social Security benefits only “improved” by a meager 1%, from a loss of 34% over the period 2000 to 2018 to a loss of 33% from 2000-2019. The loss occurred even though beneficiaries received a 2.8% annual cost-of-living adjustment (COLA) for 2019.
“One would think that a higher cost-of-living adjustment in 2019, combined with relatively low inflation, would lead to an improvement of buying power in Social Security benefits,” said study author Mary Johnson, a Social Security policy analyst for TSCL. “But any improvement was offset by spiking costs of essentials, including out-of-pocket spending on prescription drugs.”
This year’s study of retiree costs found that between January 2000 and January 2019, Social Security COLAs increased Social Security benefits by 50%, but the costs of goods and services purchased by typical retirees rose more than twice as fast—100.3%. Food and medical costs—particularly for fresh fruits and vegetables, and prescription drugs—were among the most rapidly rising costs over the past year.
The study examines the growth since 2000 in the price of goods and services that are typical for retired and disabled households, and, compares them to the growth in Social Security benefits due to annual COLAs.
2019 COLA projection
As an indicator of low inflation, based on consumer price index (CPI) data through April of this year, Johnson estimates that the COLA for 2019 will be about 1.7%. That number could change, since there are still five months of consumer price index data to be collected before the Social Security Administration announces the COLA in October.
Those participating in TSCL’s annual senior survey, which is still being conducted, confirm that monthly household expenses made steep increases over the past year, far in excess of the dollar amount that their COLAs increased benefits.
The 2.8% COLA raised the average Social Security benefit of $1,400 by about $39 per month this year. Yet more than 78% of survey participants report that their household spending rose by more than $39 per month in 2018. “When costs climb more rapidly than benefits, retirees must spend down retirement savings more quickly than expected, and those without savings or other retirement income are either going into debt, or going without,” Johnson said.
A person receiving the national average Social Security benefit in 2000—$816 per month—would have $1,226.60 per month by 2019. However, the League says, because retiree costs are rising at a substantially faster pace than the COLA, that individual would require a Social Security benefit of $407.90 more per month, or $1,634.50 in 2019, just to maintain his or her 2000 level of buying power.
The study examined the increase in costs of 39 key items between 2000 and January 2018. The items were chosen because they are typical of the costs of most Social Security recipients, and include expenditures like the Medicare Part B premium, that are not measured by the index currently used to calculate the COLA. Of the 39 items analyzed, 25 exceeded the percentage of increase in the COLA over the same period.
“This study illustrates why legislation is needed to provide a more fair and adequate COLA,” Johnson says. “To put it in perspective, the same $100 worth of groceries that a retiree household could buy in 2000, can only buy $67 worth today,” Johnson adds.
TSCL says a majority of the 60 million senior and disabled Americans who receive Social Security depend on it for at least 50% of their total income, and one-third of all beneficiaries rely on it for 90% or more of their income, which is why TSCL says it supports bipartisan legislation called the Fair COLA for Seniors Act (H.R. 1553) that would base COLAs on the Consumer Price Index for the Elderly (CPI-E).
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.