Social Security Is Lagging Inflation
Social Security is one of the few retirement pensions whose annual payments increase over time based on actual inflation. Few other private or public pensions provide this valuable benefit. Neither do annuities. Unfortunately, the cost of goods and services that seniors predominantly face has collectively risen faster than the broader Consumer Price Index for Urban Wage Earners and Clerical Workers on which Social Security’s annual cost of living adjustment (COLA) is based. The result – according to a study by the Senior Citizen’s League, an advocacy group in Virginia – is a 34% real decline in benefits since 2000, when the latest changes to the way inflation is measured were fully implemented.
Not surprisingly, healthcare and housing expenses top the list of the fastest-growing retiree outlays. Since 2000, Medicare Part B premiums are up 195% (from $45 in 2000 to $134 today) and out-of-pocket costs for prescription drugs have risen 188%. Home heating oil and propane gas prices are up 181% and 157% respectively. Property taxes have risen 129% nationally, although here in California, thanks to Proposition 13, they’ve only increased by 43%. On average, according to the study, retiree expenses grew by over 96% while Social Security COLA increases cumulatively amounted to only 46% during this period.
According to the Social Security Administration, Social Security comprises about a third of the income of the 47 million Americans age 65 and older who receive it. Its failure to keep up with inflation hits hardest those seniors who are most dependent on it for the majority of their living expenses. The Senior Citizen’s League has been advocating for a different index — the Consumer Price Index for the Elderly — to be used to determine the COLAs to obviate a problem that will only increase as seniors get older.
For those who have accumulated significant savings prior to retirement, this may not feel like much of an issue. Nonetheless, every dollar less in Social Security benefits received is a dollar more that you will need to take out of your savings to fund your retirement. As governmental support for seniors becomes less certain, the importance of managing your investments to keep your savings ahead of inflation becomes that much greater.
Here’s a link to the study: https://seniorsleague.org/assets/2018-Loss-of-Buying-Power-Report.pdf.