Social Security benefits have lost 30 percent of buying power since 2000. These are the findings of an annual TSCL study that examines the adequacy of Social Security benefits in keeping up with the rising costs typically experienced by adults age 65 and up.
This year’s study found a 3 percentage point gain in the buying power of Social Security benefits from January 2019 to January 2020. That should indicate that most retirees may have seen at least some prices go down on certain items during that period. But this is deflation — which is a strong signal that there may be no COLA next year. This year’s 1.6 percent COLA was already low to begin with. A recent deep plunge in oil prices have all but wiped out the prospect of a COLA.
The study, which examined price changes from January of 2019 to January of this year found that, since 2000, the buying power of Social Security benefits improved 3 percentage points— from a loss of 33 percent as of 2019 to 30 percent in 2020. Between January of 2000 and January of 2020, Social Security COLAs increased Social Security benefits by 53 percent, but the costs of goods and services purchased by typical retirees rose almost twice as much — 99.3 percent. Medicare premiums and out-of-pocket costs, housing, and homeowner’s insurance were among the most rapidly - rising costs over the past year.
Based on consumer price index (CPI) data through April of this year, Johnson estimates that the COLA for 2021 will be zero. That estimate could change, however, since there are still five months of consumer price index data to be collected before the Social Security Administration announces the COLA in October.
Participants in The Senior Citizens League’s surveys indicate that household medical expenses consume a significant portion of their monthly income. More than 39 percent of respondents to a recent survey say that they spend more than $750 per month on Medicare and other healthcare costs. In 2020, the average Social Security benefit is $1,460, but the 1.6 percent COLA raised the average Social Security benefit by only $23.40 per month this year. The following chart illustrates ten of the fastest growing retiree costs since 2000.
Table 1. Top Ten Fastest Growing Costs of Older Americans Since 2000
|Item||Cost in January 2000
Average cost $ or numeric data*
|Cost in January 2020
Average cost or numeric data*
|1. Prescription drugs
Annual average out-of- pocket (annual)
|2. Medicare Part B premiums (monthly)
|3. Homeowner’s insurance (annual)||$508.00||$1,389.90||174%|
|4. Home heating oil (gallon)||$1.15||$3.12||172%|
|5. 10 lbs. potatoes (gold)||$2.98||$7.98||168%|
|6. Veterinarian services||109.300*||272.904*||150%|
|7. Medigap (average monthly premium, all plans)||$119.00||$295.64
|8. Total medical costs, not including premiums (annual)||$6,140.00||$14,151.00
|9. Real estate tax (annual)||$690.00||$1,579.06||129%|
|10. Oranges (lb.)||$.61||$1.34||120%|
*numeric data from the Bureau of Labor Statistics is used when national average price data is not available.
The study found that a person who retired in 2000 — with an average Social Security benefit of $816 per month — would have $1,246.20 per month by 2020. However, because retiree costs are rising at a substantially faster pace than the COLA, that individual would require a Social Security benefit of $380.00 more per month, or a total of $1,626.20 in 2020, just to maintain his or her 2000 level of buying power.
The study examined the increase in costs of 40 key items between 2000 and January 2020. 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 40 items analyzed, 26 exceeded the COLA over the same period while 14 were lower than the COLA.
This study illustrates why legislation is needed to provide a more fair and adequate COLA. To put it in perspective, for every $100 worth of groceries a retiree could afford in 2000, that individual can only buy $70 worth today.
To help protect the buying power of benefits, TSCL supports legislation that would provide a modest boost in benefits, base COLAs on the Consumer Price Index for the Elderly (CPI-E) and guarantee a COLA no lower than 3 percent. To learn more, visit www.SeniorsLeague.org.