Social Security’s Purchasing Power Down 34% Since 2000

July 01--Each month, more than 62 million people receive a Social Security check. Of these eligible beneficiaries, nearly 45 million are aged beneficiaries, 62% of which rely on Social Security to provide at least half of their monthly income. Suffice it to say that without the guaranteed payout that Social Security offers, the elderly poverty rate in this country would otherwise be significantly higher than it is now.

Yet, truth be told, the average retired worker benefit isn't all that high. According to data from the Social Security Administration, the average retired worker received $1,412.14 in May 2018, or $16,946 a year. That's less than $5,000 above the federal poverty line for a single individual.

Even more interesting, or should I say worrisome, is the fact that, according to a new analysis from The Senior Citizens League (TSCL), a nonpartisan group that represents the interests of senior citizens, the purchasing power of these Social Security dollars has been falling precipitously since the turn of the century.

In the "2018 Social Security Loss of Buying Power Study," where more than 1,000 seniors from across the country were surveyed about their annual cost-of-living adjustment (COLA) and a bevy of expenses they've paid, it was determined that Social Security benefits have lost 34% of their purchasing power since the year 2000. In plainer terms, what $100 in Social Security income would have bought in goods and services in 2000 now buys $66 worth of goods and services.

Should these findings really shock anyone? Probably not. A May 2018 TSCL survey found that despite receiving a 2% "raise" (i.e., COLA) from Social Security in 2018, a combined 50% of respondents either saw their benefit drop, stay the same as in 2017, or rise by $5 or less, thanks to the hold harmless provision. Meanwhile, 56% of the "Loss of Buying Power Study" respondents said their expenses rose by more than $79 in 2018.

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As an aggregate, TSCL notes that the average Social Security benefit has increased by 46% since 2000. However, the 39 costs it examined, which are representative of expenses that seniors often deal with, rose by an average of 96.3% over this same time period. Assuming an average benefit of $816 per month back in 2000, the typical retiree today needs $410 more a month from Social Security than they're currently receiving just to be on par with where they were 18 years prior.

In particular, TSCL listed 10 expenses that have more than doubled since 2000, including Medicare Part B premiums (up 195%), annual average out-of-pocket prescription drug expenses (up 188%), homeowner's insurance (up 164%), Medigap plans (up 158%), and property taxes (up 129%), to name a few.

Social Security has an inflation problem that's incredibly difficult to fix

Ultimately, aged beneficiaries are getting the short-end of the stick because America's most important social program has an inflation problem.

As it stands now, Social Security's COLA is tethered to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As the name suggests, it measures the expenditures of urban and clerical wage earners, many of which are considerably younger than retired workers. As a result, medical expenses and housing costs aren't being properly reflected in the inflation calculations each year, while other expenses, such as apparel, education, and transportation, are being overemphasized.

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While there is a fix, it isn't without its own set of consequences. The Consumer Price Index for the Elderly, or CPI-E, would specifically take into account the expenditures of households with seniors aged 62 and over. If the CPI-E were used in place of the CPI-W, it would more accurately reflect the costs that seniors face, therefore providing them with a healthier annual COLA, and possibly reducing their persistent loss of purchasing power. This is a solution regularly offered by Democrats on Capitol Hill.

But here are the catches. First, the CPI-E fails to take into account Medicare Part A expenses and Part B premiums, which aren't taken into account by the traditional CPI-W, either. As a result, even with more emphasis being placed on medical expenses, the CPI-E would still, likely, underreport the actual medical expense inflation seniors are facing.

The other issue is that boosting Social Security's COLA could more quickly put the program in dire straits. As a reminder, the Board of Trustees' annual report, released in June, projects that the program will begin paying out more in benefits than it generates in revenue this year. By 2034, the $2.9 trillion in asset reserves that have been accumulated over decades will be completely exhausted, potentially leading to an across-the-board cut in benefits of up to 21%. By increasing COLA via the switch to the CPI-E, this 2034 exhaustion date could be moved forward.

Comparatively, Republicans have proposed swinging the pendulum in the other direction by using the Chained CPI in place of the CPI-W. The Chained CPI and CPI-W are similar in how they measure inflation, with one notable difference: substitution bias. The Chained CPI takes into account the desire of consumers to trade down to cheaper goods and services when one gets too pricey. Because of this trade-down assumption, the Chained CPI tends to grow more slowly than the CPI-W, and much slower than the CPI-E. In essence, it would probably result in even larger purchasing power losses for seniors.

At the end of the day, Democrats and Republicans are so fiercely divided over Social Security that nothing is getting done. If the GOP were to be successful in pushing for the Chained CPI, seniors would lose additional purchasing power. If Democrats went with the CPI-E, seniors might find some temporary relief, but would likely still lose purchasing power and bring Social Security's longer-term dilemma to head even faster. This inflation problem isn't an easy fix, and it's liable to continue ravaging the pocketbooks of seniors for some time to come.

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