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 percent real decline in benefits since 2000, when the latest changes to the way inflation is measured were fully implemented.
Not surprisingly, health care and housing expenses top the list of the fastest-growing retiree outlays. Since 2000, Medicare Part B premiums are up 195 percent (from $45 in 2000 to $134 today), and out-of-pocket costs for prescription drugs have risen 188 percent.
Home heating oil and propane gas prices are up 181 percent and 157 percent, respectively. Property taxes have risen 129 percent nationally, though here in California, thanks to Proposition 13, they’ve only increased by 43 percent.
On average, according to the study, retiree expenses grew by more than 96 percent while Social Security COLA increases cumulatively amounted to only 46 percent during the period.
According to the Social Security Administration, Social Security makes up approximately a third of the income of the 47 million Americans ages 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 Citizens League has been advocating for a different index – the Consumer Price Index for the Elderly – to be used to determine Social Security COLAs in an effort to alleviate 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 a problem. 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.
To read the study, visit seniorsleague.org/assets/2018-Loss-of-Buying-Power-Report.pdf.