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Many seniors rely heavily on Social Security to cover their expenses in retirement. Granted, some people manage to kick off their senior years with savings and have investments that pay them continuously during their 70s, 80s, and beyond. But for a lot of people, Social Security is really their only source of income. And it’s seniors in this boat who have been getting hurt financially for several decades and counting.
The reason? New data from the nonpartisan Senior Citizens League reveals that Social Security recipients have lost an astounding 36% of their buying power since 2000. What’s particularly surprising about that figure is that it’s coming on the heels of the program’s most generous cost-of-living adjustment (COLA) to come down the pike in decades.
At the start of 2023, seniors on Social Security saw their monthly benefits increase by 8.7%. In spite of that, long-term Social Security recipients have lost a ton of buying power over the past 23 years. And that trend is, unfortunately, likely to just continue unless lawmakers take action.
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A major flaw in the system
Social Security COLAs are calculated based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But as one might imagine, the expenses that urban wage earners and clerical workers face may not align all that well with the expenses seniors commonly have to bear.
The cost of gas, for example, is commonly a big driver of the CPI-W. Retired seniors don’t tend to spend as much money on gas since many don’t work and don’t travel very far by car.
As such, there’s a clear mismatch when it comes to calculating Social Security COLAs. And because of this imperfect system, seniors have been paying the price in the form of lackluster raises that truly fail to keep pace with inflation.
A better solution could be in the works
Senior advocates have long argued that the CPI-W is not a good measure for determining annual Social Security COLAs. Instead, they’re pushing lawmakers to adopt a different means of calculating raises — the Consumer Price Index for the Elderly (CPI-E).
A senior-specific index might put more emphasis on the costs that Social Security recipients are likely to incur and find burdensome, like healthcare, which is commonly a huge expense for older people. And if advocates keep pushing the CPI-E, there’s a chance lawmakers will eventually seek to use it for COLA purposes.
A heads-up for future Social Security recipients
The fact that seniors on Social Security have been losing buying power through the years isn’t really new. Those who are still in the midst of their working years should realize what a challenge it is to retire on Social Security alone and ramp up their savings efforts accordingly.
It’s seniors who are largely reliant on Social Security who tend to struggle more with inflation and rising costs than those with savings to turn to as backup income. Building a solid nest egg could compensate for the minimal lift in buying power Social Security raises allow for.
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