Over the last two decades, inflation -- at least the official inflation rate -- has remained tame, and it even went down during the Great Recession.
But it hasn’t been so tame for Americans living on Social Security. A new report by The Senior Citizens League found that Social Security benefits lost 33 percent of their purchasing power since 2000.
“One would think that a higher cost-of-living adjustment in 2019, combined with relatively low inflation, would lead to an improvement of buying power in Social Security benefits,” said Mary Johnson, a Social Security policy analyst for the League. “But any improvement was offset by spiking costs of essentials, including out-of-pocket spending on prescription drugs.”
In other words, the cost of the things seniors buy most hasn’t remained low, even though the official inflation rate has been below 2 percent for most of the last two decades. In fact, the low official inflation rate likely hurt retirees since cost-of-living (COLA) increases are based on the inflation rate. Beneficiaries received a 2.8 percent annual COLA for 2019, the largest during the study period.
Essentials increased twice as fast
In its analysis of retirees’ benefits and expenses, the study found that the Social Security COLA increased by 50 percent over the 19-year period, but the cost of things the typical retiree pays for rose more than twice as fast. Prescription drugs are at the top of the list, followed by other medical costs and food.
The study found that the 2.8 percent COLA that beneficiaries started receiving in January raised the average Social Security benefit of $1,400 by about $39 per month. At the same time, more than 78 percent of survey participants told researchers that their monthly spending rose by more than that in 2018.
“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,” Johnson said.
Independent research has shown that a growing number of seniors are living mostly on Social Security because they have no retirement savings or investments. Even if they carefully manage their money, the editors at Motley Fool report they could be one big medical bill away from financial disaster.
“Seniors account for 34 percent of all healthcare spending, and a 2012 analysis estimated senior spending on healthcare at nearly $19,000 per person,” the editors write. “The government pays for around 65 percent of medical expenses for the elderly, and seniors are left to pay for Medigap or Medicare Advantage policies to cover additional costs.”
Even retirees with money in the bank may not have enough. Earlier this year, Merrill Lynch reported that most Americans under-save for retirement by about 20 percent.
Keep an eye on your inbox, the lastest consumer news is on it's way!