Inflation eats 10% of Social Security check value—in just one year
Social Security payments have eroded in buying power over time, especially over this past year's accelerated inflation—with an especially harsh loss of 10% over the period. A report from the Senior Citizens League explores the problem.
Keeping pace with rising consumer prices has always been a challenge for people living on retirement income. Cost-of-living increases have long been the fix that governments and other plans offer—though on whatever kind of pension or other payments a person receives, COLAs almost always seem to fall behind.
The erosion of buying power is often the ongoing result. But over this past year, according to a recent report from the nonprofit Senior Citizens League, the gap is—as just about everyone has noticed—especially wide.
“Rapidly rising prices since March 2021 led to an erosion of 10 percentage points in buying power when compared with March data in 2022,” the group’s full report states. “While almost every expenditure category increased, this year’s erosion in buying power was most felt in energy costs for heating and gasoline, higher prices for many food items, and the steep jump in Medicare Part B premiums in 2022.”
That’s right. Fully 10% loss in buying power over the 12-month period, in what most view as severe inflation—which it’s been, in direct comparisons with any year-over-year period for the past several decades.
The Biden administration and many economists, including observers in the administration’s camp, cite market, demand and supply chain swings caused by the COVID pandemic and the beginnings of the Russian invasion of Ukraine as major contributors to the problem. Others, particularly political opponents, say, not so fast, inflation was kicking off well before the pandemic’s grip or any other factor offered by the White House.
A perhaps equally damning complaint from the administration’s detractors—though now often stated, regardless of party—is that both the Biden White House and the Federal Reserve were slow to take strong actions normally used to moderate price rises. These underused tools include raising interest rates—and hence the cost of borrowing, something the Fed is now doing at an accelerated pace.
Whatever its cause--whether inevitabilities or missteps by officials—the country is now beset by high inflation, a serious problem for many retirees.
The Senior Citizens League report notes that the 2023 COLA for Social Security recipients is likely to come in at about 8.6%, the sharpest rise in four decades.
To help Social Security recipients to better weather the inflation storm, the group supports an even heftier hike—while telegraphing deep concerns about high inflation continuing down the road.
SCL observes that even with the more than 8% planned boost from Social Security, payments would slip behind inflation’s costs to retirees.
Buttressing this statement, the group puts the recent figures in a more harrowing context: a well-documented, long and slow grind of lost purchasing power that evolved over decades. A steady line of Congresses and White Houses, led by both major parties, to date has never hunkered down and passed legislation to turn the situation around.
SCL says Congress should act to make certain retirees can maintain a floor on their spending power, commensurate with even the low inflation this country has experienced in recent decades. Government after government has stuck with deeply flawed COLA formulas, something the group has been advocating for years must change.
“Social Security benefits are adjusted annually for inflation to protect the buying power of beneficiaries when prices rise,” the report summarizes, while saying so far the calculation is terribly flawed. “Without an accurate and adequate adjustment that keeps pace with rising costs, beneficiaries lose purchasing power, especially over the course of a retirement that could last 25 to 30 years.”
Just how bad is the burden, the net cost to the average Social Security-dependent retiree?
“The buying power of benefits of those who retired before the year 2000 has eroded by 40%— the deepest loss in buying power since the beginning of this study by The Senior Citizens League in 2010,” SCL says in an alarming release accompanying the report.
Expressed in hard numbers , in more detail: “COLAs have increased Social Security benefits by a total of 64 percent, yet typical senior expenses through March 2022 grew by more than double that rate—130 percent.”
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