Recently, the Senior Citizens League has shed light on a concerning issue facing millions of seniors across the United States.
According to the report, Social Security beneficiaries are losing nearly $400 in their monthly payments due to the system’s inability to keep pace with actual inflation. This shortfall has led to a significant loss in buying power for seniors, many of whom rely on Social Security as their primary source of income.
As the population ages and the cost of living continues to rise, the inadequacy of Social Security payments has become a critical issue that demands attention.
The problem: inadequate cost-of-living-adjustment
Social Security’s cost-of-living adjustment (COLA) is intended to help beneficiaries maintain their purchasing power as inflation erodes the value of the dollar. However, the report from the Senior Citizens League found that in eight of the last 15 years, the COLA has failed to accurately reflect the rate of inflation. As a result, seniors have seen their buying power diminish by 20% since 2010.
The average monthly Social Security payment currently stands at $1,778, but the report suggests it should be nearly $370 higher to account for actual inflation. This discrepancy has left many seniors struggling to cover their basic needs, particularly in areas where costs have risen disproportionately, such as healthcare and housing.
The flawed COLA calculation
One of the primary reasons for the shortfall is the method used to calculate the COLA. The Social Security Administration (SSA) relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine the annual adjustment. However, critics argue that the CPI-W does not accurately measure the inflationary pressures faced by seniors, particularly in areas like healthcare, which tend to see higher price increases.
Kevin Thompson, a finance expert and CEO of 9i Capital Group, noted in an interview with Newsweek that healthcare costs have consistently outpaced overall inflation, placing a disproportionate burden on seniors. As these costs continue to rise, seniors’ savings are being depleted at an alarming rate, leaving many with little financial cushion.
The impact on seniors
The report’s findings highlight the growing financial strain on America’s elderly population. Many seniors rely on Social Security for the majority of their income, making the inadequacy of the COLA particularly troubling. With the average payment falling short by nearly $400, seniors are finding it increasingly difficult to make ends meet, especially as prices for everyday goods and services continue to climb.
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, emphasized the real-world implications of the report’s findings. “If this report finds they aren’t keeping up with rising costs, though, it wouldn’t be a shock to most seniors who are having trouble getting by on a budget, even if that budget includes increased payments,” Beene told Newsweek.
The report also suggests that the inadequacy of Social Security payments could have broader economic implications. As seniors are forced to cut back on spending to make ends meet, their reduced consumption could have a ripple effect on the wider economy, particularly in areas with large elderly populations.
The need for reform
The findings of the Senior Citizens League’s report underscore the urgent need for reform in the way Social Security COLAs are calculated. Many advocates are calling for the adoption of the Consumer Price Index for the Elderly (CPI-E), which is specifically designed to reflect the spending patterns of older Americans. By using the CPI-E, the SSA could better account for the inflationary pressures faced by seniors, particularly in areas like healthcare.
However, implementing such a change would require legislative action, and the political landscape surrounding Social Security reform is complex. While there is broad agreement on the need to protect seniors’ financial security, there are differing opinions on the best way to achieve that goal. Some lawmakers advocate for increasing Social Security taxes or raising the retirement age, while others call for more targeted measures, such as adopting the CPI-E or increasing benefits for lower-income seniors.
