First, let’s consider the good news about a Social Security cost of living adjustment (COLA) for 2018: it looks like there’s going to be one, and it could be the most generous in years. But the bad news is it may not amount to much in actual purchasing power for the typical senior.
That’s the conclusion we drew from this article we read a few weeks ago on the website of Investment News. Actually, there have been a slew of similar articles since the Social Security Board of Trustees announced their projection (still not set in stone) that benefits would go up 2.1 percent next year, the largest cost of living hike in 6 years. That’s a significant boost from the paltry 0.3 percent last year, and a big jump from the “zero COLA” offered in 2016. If the projection holds true, and Medicare Part B premiums remain unchanged as projected, the average Social Security recipient could see an extra $28 in his or her pocket – not a lot but better than nothing. Remember, though, that at this point these are strictly projections. We’ll have to wait until October to learn the actual COLA for 2018.
But things aren’t exactly rosy for most retirees for whom Social Security represents all or most of their income. The article in Investment News quotes a study by The Senior Citizen League (TSCL) estimating that Social Security recipients “have lost nearly a third of their buying power since 2000 as the costs of items typically purchased by the elderly have significantly outstripped the annual inflation increased in their retirement benefits.” Since 2012 the annual COLA for Social Security has only averaged 1 percent, largely because benefit adjustments are based on what’s called the CPI-W – the Consumer Price Index for Urban workers. “Senior advocacy groups, including The Senior Citizens League, argue that when it comes to measuring inflation experienced by retired and disabled individuals, the government is using the wrong index,” says Investment News. “The CPI-W gives less weight to medical care and housing costs — two categories that have experienced rapid inflation and represent a larger portion of the budgets of older households than younger workers.”
The Senior Citizens League did some calculations to measure the erosion in buying power for the average beneficiary. Since 2000, benefits have increased a total of 43 percent, but the actual expenses incurred by most seniors have gone up by twice that rate – 86 percent. In real numbers, the average beneficiary back in 2000 was receiving $816 per month, an amount which by 2016 had grown to about $1,170. By using a more accurate estimate of rising costs affecting seniors, TSCL calculated that it would take almost $1,520 today to match the buying power of the average benefit in 2000, leaving the typical Social Security beneficiary about $350 short in buying power every month. No wonder things are getting tougher for many low and moderate income seniors.
According to the Social Security Administration, more than 62 million Americans are receiving Social Security benefits in 2017. About one-sixth of those are disabled workers and their dependents, so the great majority of beneficiaries are retirees whose average benefit is $1,360 per month. For more than 40 percent of single retirees, Social Security accounts for 90 percent or more of their monthly income. Benefits in 2017 are estimated to total $955 billion.
In researching the story about Social Security COLA for 2018, we also found this timely article on the popular financial website Motley Fool. It quotes much of the same information as the Investment News article but adds this warning. “COLAs aside, Social Security is still facing a pretty dire shortfall within two decades’ time. The latest projections confirm what we were already told last year – that without intervention from Congress, the program’s trust funds are set to run dry come 2034.” Financial analysts estimate that if that happens, Social Security will manage to pay out only about 77 percent of scheduled benefits. “For today’s younger retirees who don’t have independent savings,” says the Motley Fool article, “that could spell major trouble down the line.”
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