Seniors could be facing a loss of nearly $400 a month on their Social Security payments, according to a recent report from the Senior Citizens League.
Social Security recipients have long complained that their monthly benefits do not accurately reflect inflation. This, despite the fact that the Social Security Administration makes a cost-of-living adjustment (COLA) every year to reflect inflation, handfuls of people who count on benefits say they have lost their purchasing power after the unsatisfactory increases.
The Shocking Gap in Social Security Payments
A new report from the Senior Citizens League concludes that Social Security payments have failed to take into account real inflation in about eight of the last 15 years. The league also stated that the current monthly Social Security payment is, on average, $370 less than it should be. This means that older people have lost 20 percent of their purchasing power since 2010, based on their monthly income.
“It’s always difficult to fully understand whether the COLA is actually keeping pace with inflation, as there are many different organizations that have their own data and estimates on this,” said Alex Beene, a financial literacy instructor at the University of Tennessee at Martin.
“However, if this report finds that they are failing to meet rising costs, it would not be a surprise to the majority of seniors who have trouble surviving on a budget, even if that budget includes larger payments.”
COLA Increase: Why Social Security Payments Are No Longer Enough for Seniors
The current COLA calculation is based on the consumer price index for urban earners, which critics have long said does not accurately measure the impact of inflation on health care and housing. Older people often feel this type of inflation at a disproportionate level.
“The steady rise in the cost of health care has outpaced overall inflation, and that is likely to be the biggest cost for seniors,” said Kevin Thompson, financial expert and founder and CEO of 9i Capital Group. “Healthcare costs continue to outpace normal inflation, and if that continues, the cost for seniors will continue to rise and their savings will continue to be depleted.”
Handfuls of senior citizens already rely almost 100% on their Social Security checks, even though the average payment is just $1,778 monthly.
Thompson said that “continued concerns that the COLA does not match the impact of inflation on seniors reflects the need to invest their assets in a diversified portfolio.”
“Stocks, over time, have been a good hedge against inflation for investors, and having a portion of your assets within these types of investments helps offset what was lost in the form of a lackluster COLA.”
As the senior population increases, with an increasing number of Baby Boomers retiring, Beene said that “more of America’s economic activity will depend on the purchasing power of older people, which will It will create more problems in the future.”
“If they can’t keep up with the costs of everyday items, they will be financially conservative and make cuts, which will not be good for the overall market,” Beene said.