Social Security Beneficiaries Struggle as Buying Power Drops 36% Since 2000

For Social Security beneficiaries, their Social Security benefits serves as a vital lifeline to cover their expenses during retirement.

Social Security beneficiaries who primarily depend on Social Security tend to struggle more with inflation and rising costs compared to those with supplementary savings. (Photo: Canadian Business)

Social Security Beneficiaries Are Struggling

While some seniors are fortunate enough to have savings and investments to rely on, a significant portion of the elderly population relies solely on Social Security as their primary source of income.

Unfortunately, these individuals have been facing a substantial financial blow for several decades and counting.

According to The Motley Fool, startling data recently released by the nonpartisan Senior Citizens League paints a grim picture: Social Security beneficiaries have experienced a staggering 36% decline in their buying power since 2000.

What makes this figure even more alarming is that it follows one of the most generous cost-of-living adjustments (COLAs) the program has seen in years.

At the beginning of 2023, Social Security beneficiaries witnessed an 8.7% increase in their monthly benefits. Despite this seemingly positive change, long-term recipients of Social Security have suffered a significant loss in buying power over the past 23 years.

Unless lawmakers take swift action, this distressing trend is likely to persist. Building a solid nest egg can help compensate for the meager increase in buying power afforded by Social Security raises.

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Social Security Beneficiaries Are Affected by System Flaws

One major flaw contributing to this issue lies within the system itself.

Social Security COLAs are determined based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter. However, the expenses faced by urban wage earners and clerical workers may not align with the financial burdens commonly encountered by seniors.

For instance, the cost of gasoline heavily influences the CPI-W. Retired seniors typically do not spend as much money on fuel since many no longer work or travel long distances by car. This disparity results in a clear mismatch when calculating Social Security COLAs. As a consequence, seniors bear the brunt of lackluster raises that fail to keep pace with inflation.

Advocates for seniors have long argued that the CPI-W is an inadequate measure for determining annual Social Security COLAs. Instead, they propose the use of a more suitable alternative—the Consumer Price Index for the Elderly (CPI-E).

By adopting a senior-specific index, greater emphasis can be placed on the expenses that Social Security recipients are likely to face, such as healthcare, which is a significant financial burden for older individuals.

Continued advocacy for the CPI-E may eventually persuade lawmakers to implement it for COLA purposes.

For those still in their working years, this serves as a cautionary tale. Recognizing the challenges of relying solely on Social Security for retirement income, individuals should proactively bolster their savings efforts.

The financial blow endured by Social Security beneficiaries over the years is not a new phenomenon.

It is imperative that current workers understand the difficulties associated with relying solely on Social Security and take steps to secure their financial future accordingly. By doing so, they can mitigate the adverse effects of inflation and ensure a more stable and comfortable retirement.

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