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Social Security benefits cover a lot fewer expenses than they used to — despite the fact that benefits increase almost every year on account of inflation.
Since 2000, Social Security benefits have lost 34 percent of their buying power, according to a by the Senior Citizens League. That includes a 4 percent loss in buying power last year alone.
According to the organization:
Housing and medical costs — particularly home heating expenses and Medigap premiums — were among the most rapidly-rising costs over the past year.
COLAs vs. costs
Social Security benefits are losing buying power because retirees’ expenses are increasing faster than Social Security cost-of-living adjustments, or COLAs.
Cost-of-living adjustments are small automatic increases to Social Security benefits based on inflation. They occur almost every year. For example, the cost-of-living adjustment was 0.3 percent for 2017 and is 2 percent for this year.
A survey of some 1,000 seniors conducted by the Senior Citizens League earlier this year found that, for half of seniors, the cost-of-living adjustment amounted to less than $5 a month from January through March of this year. That’s after accounting for Medicare Part B premiums, which are generally withheld from Social Security benefits.
By comparison, for a majority of seniors, household expenses increased by more than $79 a month during the same period.
The two retiree expenses that have increased fastest since 2000 are both related to health care:
- Medicare Part B premiums: The average monthly premium has risen from $45.50 in 2000 to $134 per month this year — a 195 percent increase.
- Prescription drugs: The average annual out-of-pocket cost has risen from $1,102 in 2000 to $3,172.72 this year — a 188 percent increase.
What it means for you
Watered-down Social Security benefits arguably impact retirees living on fixed incomes more than any other group. As study author Mary Johnson, a Social Security policy analyst at the Senior Citizens League, explains:
“When costs climb more rapidly than benefits, retirees must spend down retirement savings more quickly than expected, and those without savings or other retirement income are either going into debt, or going without.”
For folks who have yet to retire, the Senior Citizens League’s study underscores the importance of saving and investing your own money for retirement. Social Security alone won’t cut it — and was never meant to.
As of April, the latest month for which the Social Security Administration has the average retired worker’s Social Security benefit was $1,412.14 per month. That’s less than $17,000 per year.
The Senior Citizens League study also underscores the importance of maximizing Social Security benefits through a sound claiming strategy. You can learn more about that in “Maximize Your Social Security.”
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