Inflation Is Coming Down, But Will You “Catch Up?”

Inflation Is Coming Down, But Will You “Catch Up?”

By Mary Johnson, Editor

Some financial experts theorize that retirees can look forward to an improvement in buying power this year. As the rate of inflation falls, that should mean the buying power of Social Security benefits will go a little further. That would be welcome news, but the reality is, catching up isn’t going to be simple.

Before anyone can answer the question of whether Social Security buying power is improving, there needs to be a measure of how deeply benefits and cost-of-living adjustments fell short of actual inflation in recent years. Since no such measure exists yet, I spent some time going through 36 months’ worth of consumer price data to understand how retirees fared from the start of the COVID-19 pandemic until now.

The results startled even me, and I suspect that what we are looking at is unprecedented for today’s Social Security recipients. Since the start of the COVID-19 pandemic in 2020, the average Social Security COLA fell short of inflation by about $1,054 over the three years ending December 2022.

This is caused when there’s a mismatch between the rate of actual inflation and the amount of the COLA received. I calculated how much benefits would have needed to increase each month from January 2020 to December 2022 to keep pace with actual inflation and compared it to the amount that was really received. Then I added the shortfalls together to find a total of $1,054.

Here are the details:

  • 2020, the 1.6% COLA kept pace with inflation, but only after March when COVID-19 shut down the economy, gasoline prices plummeted, and deflation temporarily set in. Average benefits ended the year ahead by $53 before deductions for Medicare Part B premiums. The Medicare Part B premium increased from 2019’s $1,626.00 annually to $1,735 annually — an increase of 6.7%. The annual Medicare Part B premium costs ate up the $53 which exceeded inflation.
  • 2021, the 1.3% COLA left Social Security recipients with virtually no inflation protection, falling behind on average by 261% per month. In terms of dollars, the average benefit fell behind by $51 per month / $612 annually. This is before the deduction for Medicare Part B premiums of $148.50 per month / $1,782 annually.
  • 2022, the 5.9% COLA fell short on average by 46% per month. In terms of dollars, average benefits fell behind $41.25 per month / $495 for the year. This is before the deduction for Medicare Part B premiums of $170.10 per month / $2,041.20 annually, and one of the largest increases in Medicare program history.
  • Total three year COLA shortfall since the start of 2020 - 2022 (not counting Part B deductions): $53.20 + (-)$612 + (-)$495 = (-) $1,053.60.

Can retirees recover? That’s uncertain and a long shot because it depends on the inflation rate coming down to zero. The moderation of inflation in January and February will shrink the shortfall, but only by $80.60 (based on an average benefit) before the deduction for Medicare Part B premium each month, which in 2023 is $164.90.

There’s still a long way to go. Even though inflation is moderating, it’s unlikely to eliminate a shortfall of this size. When inflation is below the level of the previous year, that would mean no COLA would be payable at all next year, but Medicare Part B and other healthcare costs may continue to climb.

Older Americans need more reliable protection from inflation and more reliable ways of recovering from the recent inflation. The Senior Citizens League (TSCL) feels older adults could be helped to recover from inflation in four ways:

  1. Provide a one-time $1,400 payment for all Social Security recipients to offset shortfalls due to a mismatch between rising inflation and the COLA.
  2. Ensure the COLA is adjusted using a “seniors index” such as the Consumer Price Index for the Elderly (CPI-E) that more fairly tracks the portion of income that adults aged 65 and up spend on goods and services.
  3. Guarantee that the COLA is never lower than 3%.
  4. Adjust the income thresholds that subject Social Security benefits to taxation to today’s dollars, and then automatically adjust annually in the same manner as the rest of the tax code. This will allow millions of retirees to keep more of their Social Security income.

How have you been impacted by high inflation? Please let us know by taking our annual Senior Survey at