Social Security Benefits Lose 36% Of Buying Power Since 2000
September 20, 2023 at 9:45 a.m.
Research on the buying power of Social Security benefits by The Senior Citizens League (TSCL) confirms that inflation is moderating. But a lower inflation rate has not necessarily meant that prices have come down.
The declining rate of inflation points to a significantly lower COLA for next year, after the 8.7% COLA in 2023 — the highest in four decades. “The 2024 COLA could be around 3.2%,” says The Senior Citizens League’s Social Security and Medicare policy analyst, Mary Johnson.
The buying power of Social Security benefits can erode when the annual cost of living adjustment (COLA) fails to keep pace with rising costs. But in some years, buying power can improve modestly when inflation moderates. One year ago, this study found that Social Security benefits lost 40% of buying power since 2000. That was the deepest loss in buying power since the start of this study in 2010. This year the study found that the loss of buying power slightly improved — by four percentage points — to 36%. However, that is still one of the deepest losses recorded by this study, exceeded only by the loss in 2022.
Nothing beats eggs! This study compares the growth in the COLA since 2000 with increases in the price of 38 goods and services typically used by retirees over the same period. This year buying power was most impacted by sharp increases in food items, electricity, rental housing, repair and maintenance costs of motor vehicles, and a 16% increase in the cost of dental care. (Medicare does not cover routine dental services.) Topping our list of fastest-growing items? Eggs. No other spending item on the list grew faster during the survey reference period, which compared the average price change from February 2022 to February 2023. (See Tables 1 & 2).
Without an accurate cost of living adjustment (COLA) that keeps pace with rising costs, beneficiaries lose purchasing power, especially over the course of a retirement that could last 25 to 30 years. This loss is cumulative and grows deeper as retirees age. It can cause significant hardships, including more rapid depletion of savings than expected, growing debt, and worse health outcomes. In short, a significant deterioration in an older household’s standard of living.
Between January 2000 and February 2023, Social Security COLAs increased benefits by 78 percent, averaging 3.4 percent annually. But the cost of goods and services purchased by typical retirees rose by 141.4 percent averaging about 6.2 percent annually over the same period. For every $100 a retired household spent on groceries in 2000, that household can only buy about $64 worth today.
Why would failing to come to an agreement on the debt limit affect the payment of Social Security benefits? Beneficiaries are legally entitled to full scheduled benefits under the Social Security Act. But according to a recent issue brief from the Congressional Research Service, another law, the Antideficiency Act, prohibits government spending in excess of the available funds.
The Social Security Administration (SSA) would not have the legal authority to pay Social Security benefits in full or on time should the trust funds fall short due to a delay in an agreement over the debt limit. No law provides the specific actions the SSA must take to ensure that Social Security benefits are paid in full and on time.
According to the Social Security Trustees’ most recent annual report, the Social Security Trust Fund is the largest government holder of U.S. debt — an estimated $2.8 trillion. Social Security benefits are paid for by law from the Social Security Trust Fund. When employers send in payroll tax revenues and the U.S. Treasury receives federal income taxes from the taxation of Social Security benefits, the Treasury issues special non-marketable bonds in the funds to Trust Fund. In other words, the U.S. government “borrows” those funds.
In return, the Social Security Administration depends on “the net interest” earned by the special bonds and payroll tax revenues to pay the Social Security benefits of today’s retirees in full and on time. The Social Security Trustees recently estimated that the Retirement and Survivors Trust Fund would receive about $66.4 billion in net interest in 2023. That money comes from the Federal General Budget and is subject to the debt limit.
For more information about The Senior Citizens League, visit their website: The Senior Citizens League | Welcome to TSCL (seniorsleague.org).