Millions of seniors depend on Social Security to pay the bills in retirement. But in recent years, those benefits have been letting retirees down.
Since 2000, Social Security beneficiaries have lost 34% of their buying power, according to data from the Senior Citizens League. The reason? The cost of most retiree expenses has risen faster than Social Security's annual cost-of-living adjustments, or COLAs.
Since the year 2000, COLAs have averaged just over 2%. Meanwhile, the cost of Medicare Part B premiums, which enrollees are required to pay, has risen 195% since 2000. Prescription drug costs have also jumped 188% in the past 18 years, while property taxes have climbed 129%, leaving senior homeowners struggling to keep up.
Why the disparity? It stems from the way COLAs are calculated. For years, they've been based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which, as the name implies, tracks spending among urban and clerical workers. The problem, however, is that these workers are mostly, by nature, non-retirees, and so their expenses and spending habits differ tremendously from those of seniors. In other words, the CPI-W is an inadequate benchmark for determining how much of a raise seniors need, yet it's the formula we've been sticking with for years.
Of course, lawmakers are aware of the problem, but have yet to come up with a better means of determining COLAs. As a result, seniors have been stuck in a holding pattern and suffering for it.
Don't count on Social Security alone
All of this underscores the importance of saving for retirement independently rather than relying on Social Security alone. One thing many workers don't realize is that Social Security was never designed to sustain retirees by itself. At best, those benefits will replace about 40% of the average senior's pre-retirement income, and most seniors will need closer to 80% to pay their bills once they stop earning a paycheck. Even if COLAs were to get more generous in the coming years, Social Security will still fall short in covering seniors' living expenses, which is why it's on workers to bridge that gap by building savings.
This article was originally published on Cedar Valley Business Monthly
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