As inflation rises, Social Security may pay more
July 21, 2021
Worry about inflation has peppered headlines across the country recently, but Social Security recipients could reap bigger benefits because of it. In fact, it might be the biggest increase in Social Security since 1983. That’s good news for its 69 million American recipients and the one in 6 Wisconsin citizens who receive Social Security payments each month.
The Senior Citizens League (TSCL) reported that many seniors struggle to make ends meet because prices for almost everything have risen sharply in 2021. The advocacy group pointed to an abrupt rise in inflation in everything from gas to food to clothing during February and March as a reason seniors receiving Social Security benefits lost buying power in 2021.
Its report, “Social Security Buying Power” issued in mid-May, outlines the problem. Consumer goods typically used by seniors flatlined in 2020, which improved their buying power by 2 percentage points. But that “improvement” only meant a loss of buying power from 30 to 28 percent. And inflation in February and March wiped out that small gain.
“That loss of buying power could grow deeper in 2021, should the current inflationary trends continue,” Mary Johnson, a Social Security policy analyst for TSCL, was quoted as saying in the report. “We are in an aggressive inflation pattern that I haven’t seen previously.”
TSCL’s study looked at 39 expenditures typical of those aged 65-plus. It compared the growth in prices for these services and goods to the annual cost of living increases. Based on these comparisons, it forecasts that the 2022 cost of living adjustment (COLA) could rise to 4.7 percent, the highest since 2009. TSCL reports that this estimate could change several times before the COLA announcement in October 2021.
Why does this matter? According to the study, although COLAs have increased Social Security benefits 55 percent since 2000, typical senior expenses through March 2021 grew 101.7 percent. In 2000, the average benefit was $816 per month. In 2021, the benefit increased to $1,262.40 per month, but senior costs rose at a more rapid pace. To maintain the same level of buying power in 2021, that benefit would have to be $1,645.60 per month.
“This study illustrates why legislation is needed to provide a more fair and adequate COLA,” Johnson stated in the report. “To put it in perspective, for every $100 worth of groceries a retiree could afford in 2000, they can only buy $70 worth today.”
One of the fastest growing costs for seniors is the Medicare Part B premium, which has not been part of COLA calculations. CBS Moneywatch reported in mid-July that for some seniors, that means eating only once per day in order to cover medical costs.
Some good news tempers this bleak outlook for Social Security recipients. In June, the Social Security COLA was estimated at 5.3 percent for 2022. But TSCL estimates this month that the bump could rise to 6.1 percent due to inflation. The 2021 COLA was 1.3 percent, which increased Social Security checks only about $20 per month.
Other good news lies in a bill introduced in Congress in July by Rep. John Garamendi, D-Calif., called The Fair COLA for Seniors Act of 2021. The bill proposes changing from the currently used The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E) to measure COLA. This change will better reflect the expenses seniors typically have, giving more weight to medical costs.