Social Security recipients saw a 1.6% bump in their benefit payments this year on account of inflation. But it has done little to help counteract the erosion of Social Security benefits’ purchasing power, according to an analysis by the Senior Citizens League.
The organization’s “2020 Loss of Buying Power Study” found that benefits have lost 30% of their buying power since 2000.
That’s an improvement of 3 percentage points from the prior annual study, which found that benefits had lost 33% of their buying power from 2000 to 2019.
COLAs versus costs
Social Security cost-of-living adjustments (COLAs) are small increases to benefits that are based on a federal measure of inflation known as the Consumer Price Index for Urban Wage Earners and Clerical Workers. COLAs occur almost every year.
Social Security benefits are losing buying power because retirees’ expenses are increasing faster than Social Security COLAs, according to the Senior Citizens League.
“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.”
The study findings are based in part on an analysis of the cost of 40 goods and services that are typical purchases for people age 65 and older.
Of those 40 expenses, 26 have increased at a greater rate than the COLA since 2000. Those that rose most sharply during that period are:
- Prescription drugs: The average annual out-of-pocket cost rose from $1,102 to $3,875.76 — an increase of 252%.
- Medicare Part B premiums: The average monthly premium rose from $45.50 to $144.60 — an increase of 218%.
- Homeowners insurance: The average annual cost rose from $508 to $1,389.90 — a 174% increase.
What it means for you
Folks who have already begun claiming their Social Security retirement benefits have only two main options for coping with a cost of living that is outpacing COLAs: either find a way to reduce spending or to increase income.
Neither option is easy, especially for retirees, but both are possible, as we detail in stories like “15 Ways to Stretch Your Dollars in Retirement” and “20 Ways Retirees Can Bring in Extra Money in 2020.”
For folks who have yet to claim Social Security benefits, the Senior Citizens League’s study underscores the importance of waiting as long as possible to apply for benefits or otherwise maximizing your benefits by taking time to determine the best claiming strategy for your situation before applying for benefits.
As we explain in “7 Social Security Blunders That Can Ruin Your Retirement“:
“… once you claim benefits, you will be stuck with the same size payment for life. The amount of a person’s monthly benefit typically will never increase except for inflation adjustments.”
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