While skyrocketing lumber prices might not impact a significant percentage of retirees, fast-rising prices of many other goods and services are definitely putting a budget crunch on seniors who rely heavily on Social Security in retirement.
In January of this year, the annual cost of living adjustment (COLA) raised Social Security benefits by only 1.3%, making it one of the lowest ever paid. But since then, “inflation has exploded,” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League (TSCL).
The 1.3% increase bumped the average monthly benefit for all retired workers just $20, from $1,523 in 2020 to $1,543 in 2021. That equates to about an extra $240 per year.
RELATED: 2022 Social Security COLA on Pace for Biggest Increase Since 2009
More than 62% of retirees think that Social Security COLAs need a guaranteed minimum of at least 3%, according to a new survey by TSCL, which is working with members of Congress to have legislation introduced that would strengthen Social Security benefits by tying the annual COLA to the Consumer Price Index for the Elderly (CPI-E), and by providing a guaranteed minimum COLA of no less than 3%.
The latest survey, which had 1,125 participants, was conducted from mid-January through April 20, and coincided with one of the stiffest increases in inflation in a decade.
Johnson, who researches the effect of rising prices on Social Security benefits, found that through the end of December 2020, inflation as measured by the CPI-W—the index used to calculate the annual COLA—was just 1.4% in 2020.
“But as of the end of March 2021, the CPI-W was more than 3% higher than this time a year ago,” she says. “This is a inflation pattern I haven’t seen before.”
Inflation had completely flat-lined in first quarter of last year, which included January and February, well before COVID-19 shuttered businesses and sent the economy into a sudden tailspin in mid-March. But by the end of first quarter 2021, inflation erupted, growing by 1.4% versus zero over first quarter 2020. Johnson notes the last time inflation was growing that fast was nine years ago in 2012, but that year was also proceeded by another year of higher inflation, instead of the deflation in 2020.
“When the prices on the goods and services that retirees depend on go through the roof, their Social Security benefits don’t buy as much, and that causes enormous financial stress for all retirees.”
The largest COLA increase was 5.8% in 2008. Since 2010, the average increase has been 1.4%, according to the Social Security Administration. The 2022 Social Security COLA will be determined by CPI data through September 2021.
According to prior research by Johnson, from January 2000 to January 2020, Social Security benefits lost 30% of buying power.
Johnson compiled a baker’s dozen list of the items whose costs are among the fastest growing. “Newly immunized grandparents will need to budget about 31.2% more for car rentals when visiting the grand kids,” Johnson says. “And I’m putting off replacing a failing washing machine. I don’t want to pay 24.2% more to get a new one now.”
Johnson also points out that the fastest growing cost list DOES NOT include the more usual “suspects”—prescription drugs and medical costs. “This is not because those costs didn’t increase,” Johnson says. “They just didn’t increase as much as the other items that made the list.”
Physician services were up 5.3%, but prescription drugs as measured by the CPI-W were down 2.3% from March 2020. Housing costs grew slightly faster than the COLA, up by 2%.
Fastest Growing Retiree Costs (March 2020-March 2021)
- Car and truck rental: 31.2%
- Laundry equipment: 24.2%
- Gasoline: 22.2%
- Home heating oil: 20.2%
- Beef roasts: 11.2%
- Pork roasts, chops: 10.5%
- Citrus fruits: 9.8%
- Used cars and trucks: 9.4%
- Toilet paper, paper towels: 7.9%
- Apples: 7.4%
- Canned tuna: 7.1%
- Haircuts: 5.9%
- Care of invalids and elderly in home: 5.9%
Source: Consumer Price Index data, Bureau of Labor Statistics, March 2021
SEE ALSO:
- Retirees Unhappy With 2021 Social Security COLA ‘Boost’
- Emergency’ Bill Introduced to Increase Social Security COLA
- Social Security 2021: What Will and What Might Happen
- 2022 Social Security COLA on Pace for Biggest Increase Since 2009
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.
