Soaring inflation has caused Social Security benefits to lose 40% of their buying power since the year 2000 according to the latest update of an ongoing study by TSCL. Purchasing power plummeted by 10 full percentage points in just the past year, from March of 2021 to March 2022 — the largest such drop since TSCL began the study in 2010.
That loss of buying power is putting the oldest retirees in a financial bind — particularly lower-income households that depend on Social Security for most, or all, of their income. Nearly three-quarters of participants in TSCL’s Senior Survey said that their monthly expenses have increased by at least $96 to more than $144 per month from 2021 to 2022, while the annual cost-of-living adjustment (COLA) increased average Social Security benefits by less than $93 per month. Consequently, about one out-of-two older adults spent through their emergency savings over the past 12 months and 43% report they are carrying debt on consumer credit cards, according to TSCL’s Senior Survey conducted early this year.
TSCL’s Loss of Buying Power study compares the growth in the Social Security COLA adjustments with increases in the price of 37 goods and services typically used by retirees. While prices rose in virtually every spending category this year, benefits were most impacted by sharp increases in energy costs for home heating, gasoline, higher food prices, and a steep 14.5% increase in Medicare Part B premiums in January of this year.
The study examines expenditures that are typical for people ages 65 and up, comparing the growth in the prices of these goods and services to the growth in the annual COLAs. It includes cost increases in Medicare premiums and out-of-pocket health care costs that are not tracked under the CPI-W, the consumer price index currently used to calculate the COLA.
This year the study found that since 2000, COLAs have increased Social Security benefits by a total of 64%, while the typical expenses of older households grew by more than double that rate — 130% through March 2022. In 2000, the average Social Security benefit was $816 per month. That benefit grew to $1,336.90 by 2022 due to COLA increases. But because retiree costs are rising so much faster than the COLA, this study found that a Social Security benefit of $1,876.70 per month or $539.80 per month ($6,477.80 per year) more than currently paid would be required just to maintain the same level of buying power as in 2000. The following table illustrates the top ten fastest-growing costs for older consumers from March 2021 to March 2022.
Fastest Growing Costs of Older Americans March 2021 – March 2022
|Item||Cost in March 2021
Average cost $ or numeric data*
|Cost in March 2022
Average cost $ or numeric data*
|Percent increase since March 2021|
|1.) Home heating oil (gal.)||$2.86||$5.13||79%|
|2.) Gasoline (all grades, gal.)||$2.86||$4.33
|3.) Used vehicles||153.873*||208.216*||35%|
|4.) Propane gas (gal.)||$2.30||$2.98||30%|
|5.) Eggs (dz.)||$1.63||$2.05||26%|
|6.) Bacon (lb.)||$5.85||$7.20||23%|
|7.) Oranges (lb.)||$1.27||$1.48||16.5%|
|8.) Coffee (lb.)||$4.67||$5.41||16%|
|9.) Medicare Part B premium (mo.)||$148.50||$170.10||14.5%|
|10.) Ground chuck (lb.)||$4.31||$4.87||13%|
*Source U.S. Bureau of Labor Statistics (BLS), data through March 2022. Where no average prices are available, numeric data as calculated by the BLS are used.
What can Congress do to improve the purchasing power of Social Security benefits? The Senior Citizens League supports a combination of legislative approaches that would offset the loss of buying power and strengthen benefits in three ways:
1.) Provide a boost of 2% of an individual’s benefit. A boost of this size would permanently increase benefits on average, by about $30 per month and would offset the erosion in buying power that occurred by the time the 2022 COLA of 5.9% became effective in January. Even though that was the highest COLA paid in 40 years, actual inflation as measured by the CPI-W had continued to climb to 7.8% through December of 2021. Thus, Social Security beneficiaries started 2022 behind by 1.9%. Inflation has continued in January until now so this would provide only partial remediation.
2.) Tie COLA to an index that better tracks the costs of Social Security recipients. Medicare Part B premiums, prescription drug out-of-pocket costs, and other healthcare costs are typically the fastest growing cost in retirement. But these costs aren’t fairly measured by the CPI-W. Although the CPI-W is used to determine the COLA, the index doesn’t measure the spending patterns of households older than 62 who are retired, but instead measures the costs of younger working adults. Retirees, and disabled Social Security recipients make up the majority of those receiving Social Security and people 65 and older and the disabled, spend a much greater portion of their household budgets on healthcare. Thus, COLAs undermeasure healthcare, which is a key source of inflation experienced by Social Security recipients.
Today’s high rate of inflation is not normal and won’t last forever. In fact, in the 12 years prior to 2022 the COLA averaged just 1.4% per year. In many of those years Social Security recipients with the lowest benefits and the lowest COLAs would see the Part B premium increase take the entire amount of their COLA, leaving little or nothing left over to address all other rising costs. The Senior Citizens League wants to see COLAs tied to an index that more fairly reflects seniors’ rising medical costs.
3.) Provide a minimum COLA of 3%. Since 2010 there have been four years when inflation was so low, that no COLA or almost no COLA was payable. In 2010, 2011, and 2016, the COLA was zero, and in 2017, it was only 0.3%. Even though inflation soared at the fastest rate in 40 years in 2021, the COLA had only increased benefits by 1.3% in January of 2021, leaving the buying power of Social Security recipients virtually unprotected from the rapid rise in prices that followed. TSCL believes that COLA increases should never be lower than 3%.