Social Security recipients saw a 5.9% 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.
Benefits lost 40% of their buying power between 2000 and March 2022, according to the Senior Citizens Leagues’ new Social Security Loss of Buying Power report.
That’s 10 percentage points more than the prior annual study, which found that benefits had lost 30% of their buying power between 2000 and March 2021.
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 March 2022, Social Security COLAs increased benefits by 64 percent, but the costs of goods and services purchased by typical retirees rose by more than twice that rate — 130 percent. For every $100 a retired household spent on groceries in 2000, that household can only buy about $60 worth today.”
The study findings are based in part on an analysis of the cost of 37 goods and services that are typical purchases for people age 65 and older.
Those that have increased at the steepest rates since 2000 are:
- Home heating oil: The average per-gallon cost rose from $1.15 to $5.13 — an increase of 348%.
- Prescription drugs: The average annual out-of-pocket cost rose from $1,102 to $4,245 — an increase of 285%.
- Medicare Part B premiums: The typical monthly premium rose from $45.50 to $170.10 — an increase of 274%.
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 to at least some extent, as we detail in stories like “15 Ways Retirees Can Stretch Their Savings” and “21 Ways Retirees Can Bring in Extra Money in 2022.”
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.”