High inflation has caused Social Security benefits to lose 40% of their buying power since the year 2000 according to the latest update of an ongoing study by The Senior Citizens League (TSCL).
The new study was released this morning, shortly after the Bureau of Labor Statistics released its April 2022 Consumer Price Index data, which showed an 8.3% rise over April of last year, coming down slightly from March’s 8.5% advance, which was the highest since 1981. The CPI for All Urban Consumers (CPI-U) increased 0.3% in April on a seasonally adjusted basis after rising 1.2% in March.
Based on the April CPI data, TSCL Social Security policy analyst Mary Johnson slightly lowered her 2023 Social Security cost of living adjustment (COLA) estimate from 8.9% to 8.6% thanks to the slight moderation in the rate of inflation. That would still be the highest COLA since 1981.
Social Security beneficiaries received a 5.9% COLA increase in 2022—the highest inflation adjustment in 40 years. By comparison, the 2021 COLA was just 1.3%.
Johnson said the dramatic loss in Social Security buying power—fanned by sky-high recent inflation—paints a grim picture for retirees.
“That’s the deepest loss in buying power since the beginning of this study in 2010,” said Johnson, who conducted the research.
Social Security purchasing power plummeted by 10 full percentage points, from a 30% loss of buying power in March of 2021 to 40% in March 2022—the largest such drop ever recorded by Johnson’s study.
The study compares the growth in the Social Security COLA adjustments with increases in the price of 37 goods and services typically used by retirees. While prices rose in almost every spending category, benefits were most impacted by sharp increases in energy costs for home heating, gasoline, and higher food prices, and a steep 14.5% increase in Medicare Part B premiums in January of this year.
This study examined expenditures that are typical for people ages 65 and up, comparing the growth in the prices of these goods and services to the growth in the annual COLAs. It includes cost increases in Medicare premiums and out–of–pocket health care costs that are not tracked under the index currently used to calculate the COLA.
The study found that since 2000, COLAs have increased Social Security benefits by a total of 64%, yet typical senior expenses through March 2022 grew by more than double that rate—130%.
The average Social Security benefit in 2000 was $816 per month. That benefit grew to $1,336.90 by 2022 due to COLA increases.
Because retiree costs are rising so much faster than the COLA, this study found that a Social Security benefit of $1,876.70 per month or $539.80 per month more than currently paid would be required just to maintain the same level of buying power as in 2000.
Home heating oil and gasoline were the two fastest-growing costs for older consumers from March 2021 to March 2022, per U.S. Bureau of Labor Statistics data. Home heating oil has risen 79% and gasoline 51%. The third-biggest increase was in the price of used cars at 35%. Among popular commodities, eggs are up 26%, bacon 23%, oranges 16.5% and coffee 16%.
“Retirees know all too well that, Social Security benefits don’t buy as much today as when they first retired,” Johnson said. “To put it context, for every $100 of goods or services that retirees bought in 2000, today they would only be able to buy $60 worth.”
To help protect the buying power of benefits, The Senior Citizens League supports legislation that strengthens and protects the annual cost of living adjustment and Social Security benefits.
SEE ALSO:
• 2023 Social Security COLA Estimate Spiking with Inflation
• 4 Biggest Social Security Worries Heading Into 2022
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.