Why Social Security Benefits Are Worth Even Less Than You Think

Social Security payment
Photo by Alexey Rotanov / Shutterstock.com

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 recent study 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 released data, 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.”

What’s your take on this news? Sound off below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

7 Hobbies That Help You Live Longer
7 Hobbies That Help You Live Longer

Research shows some hobbies can add years — or even decades — to your life.

Why Cutting the Cord Can Be Confusing — and How to Decide If It’s for You
Why Cutting the Cord Can Be Confusing — and How to Decide If It’s for You

Streaming TV might sound like the antidote to sky-high cable bills, but cutting the cord is easier said than done.

20 Great Part-Time Jobs for Retirees
20 Great Part-Time Jobs for Retirees

Maybe you’re not ready to leave the workplace entirely.

How to Prepare Your Finances for Retirement in 7 Steps
How to Prepare Your Finances for Retirement in 7 Steps

Here is how to get your finances in shape for your golden years, one step at a time.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

The 10 Worst States for Retirees in 2021
The 10 Worst States for Retirees in 2021

Based on factors like affordability, quality of life and health care, these are not ideal places to spend retirement.

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.