A recent study by The Senior Citizens League delivered a couple of pieces of bad news regarding Social Security—one dealing with the past; the other with the future.
For starters, the Social Security cost-of-living-adjustment (COLA) has not kept pace with rising costs over the past decade and has failed the millions of seniors and disabled Americans it's intended to protect, according to the "Social Security Loss of Buying Power" study from the Alexandria, Va.-based seniors advocacy group.
Since 2000, Social Security benefits have lost 30% of buying power, the study said. And while that represents a three-percentage-point gain from 2019, which means prices have dropped for some items such as electricity and fresh fruits and vegetables, the cheaper prices could be cause for even more concern, said Mary Johnson, a Social Security policy analyst for The Senior Citizen League and the study's author.
The other important piece of news, Johnson said, is that data through April, based on the consumer price index for urban wage earners and clerical workers (CPI-W)—the index used to compute Social Security's COLA—suggest there will not be a COLA increase in 2021. And the collapse of the oil market is more evidence of that, she said, explaining that gasoline and energy prices significantly impact COLA because that sector is weighed more heavily in the CPI-W.
The Social Security Loss of Buying Power study, now in its 11th year, was conducted from January 2019 to January before the pandemic, when oil prices were still strong, but prices began to plunge shortly thereafter, Johnson said, noting that other items such as electricity, fresh fruits and vegetables also saw price drops.
But she predicts price hikes for foods such as beef and pork, which she said had particularly strong growth in January. Milk prices have also risen, which Johnson attributed in part to school closings. “And I would anticipate [milk prices] may still be a problem,” she said.
The study examined price changes for 40 key items between 2000 and January 2020. These items are typical of the costs of most Social Security recipients, including expenditures like the Medicare Part B premium, that are not measured by the index currently used to calculate the COLA. Of the 40 items analyzed, 26 exceeded the COLA over the same period. Comparing the growth in the prices of those goods and services to the growth in the COLA, the study concluded that for every $100 a retired household spent in 2000, that household can only buy about $70 worth of the same goods and services today.
And while Social Security COLAs increased benefits by 53% between January 2000 and January 2020, the costs of goods and services purchased by typical retirees close to doubled at 99.3%, Johnson said.
In 2000, a retiree collected on average $816 per month and was able to pay the annual homeowners insurance bill and still have money left over. In 2020, that amount reached $1,246.20, which falls short. “Households with a benefit of $1,246.20 must make insurance payments over several months, dig deeper into savings, or borrow to cover the cost of their policy,” Johnson said.
Because retirees’ expenses are outpacing COLA, the study noted it would require Social Security to increase benefits by $380 per month, to $1,626, for retirees to maintain their level of buying power in 2000.