Social Security checks don’t go as far as they used to because of inflation. And, while beneficiaries are expected to receive an 8.6 percent raise next year, it will not be enough to keep up with rising prices.
This is because cash Social Security Administration (SSA) benefits have lost 40% of their purchasing power since 2000, according to data released Wednesday by The Senior Citizens League (TSCL), a nonprofit advocacy group.
The majority of that decrease occurred during the fiscal year ending in March 2022. Beneficiaries’ purchasing power fell by ten percentage points in just one year, according to TSCL.
“This is the greatest loss in purchasing power since The Senior Citizens League began this study in 2010,” said Mary Johnson, TSCL’s Social Security policy analyst, in an announcement Wednesday.
According to Johnson’s research, the skyrocketing cost of home heating oil, gas, used vehicles, food, and Medicare premiums are major contributors to that 10-point drop. People can no longer afford the same amount of goods as they could previously, so a reduction in purchasing power effectively translates into a reduction in benefits.
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This is despite the fact that Social Security benefits are nominally increased annually through cost of living adjustments (COLAs), which are specifically designed to assist beneficiaries in dealing with inflation.
According to the Labor Department, consumer prices rose 8.3 percent in the year ending in April. The inflation rate was 8.5 percent last month. This is referred to as the “headline” inflation rate.
When it comes to Social Security benefits, the agency uses a slightly different inflation metric, and the rate was even higher in April — 8.9 percent, up from 9.4 percent in March. Based on these figures, Johnson anticipates a COLA of 8.6 percent in 2023, a slight decrease from her previous projection of 8.9 percent.
Recent price increases have revealed flaws in how the SSA calculates COLAs.
Each year, the SSA bases its annual COLAs on inflation figures from July, August, and September. The COLA is announced in October, but payments do not begin until January of the following year. If inflation rises before or after October, when the COLA rate is calculated, beneficiaries will be forced to take a pay cut.
For example, in January, Social Security beneficiaries received a 5.9 percent increase in benefits, the largest increase in four decades. Nonetheless, the raise has not kept pace with the soaring prices that people have been experiencing in the meantime.
According to Johnson’s research, the result has been a massive decrease in purchasing power over time. To maintain purchasing power from 2000, Social Security benefits would need to be increased by $540 per month.
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In other words, since 2000, Social Security benefits have increased by 64%. During the same time period, Johnson discovered that typical senior expenses increased by 130 percent. Medical costs are a significant expense for older adults, and health-care inflation tends to be higher than general inflation, contributing to the loss of purchasing power.
“Retirees all too well know that Social Security benefits don’t buy as much today as they did when they first retired,” Johnson said in a news release.
This shortfall is having an impact on more than just retirees. Every month, more than 70 million Americans rely on SSA checks. Approximately 50 million of those people are receiving retirement benefits. People with disabilities, as well as family members of deceased workers, are among the remaining 20 million beneficiaries.
While Johnson’s latest COLA projection is based on the most recent Labor Department data, we won’t know for sure what the exact COLA for next year will be until the SSA makes the announcement in October.
While any raise would be welcome, the funds will not be available until January 2023.