Social Security Checks Are Rising in 2021. Here’s Why Purchasing Power Isn’t
When the coronavirus pandemic hit earlier this year, many analysts feared that falling gas prices meant that seniors wouldn’t get any increases in Social Security until 2021. Ultimately, the seniors get a raise after all – a 1.3% cost of living. adjustment, or COLA.
If that sounds stingy at first glance, well, it is. In fact, for the typical senior, this increase will amount to less than an additional $20 per month, and that’s without taking into account Medicare Part B premium increases. Unfortunately, this isn’t a situation unique to 2021. social security have been losing purchasing power for years because of a big problem.
Why Social Security benefits won’t be worth much in 2021
Although monthly Social Security checks will increase slightly in 2021, there is a good chance that health care costs will increase even more.
This dynamic has already existed for years. Health care costs have increased by an average of 2.928% per year over the past 10 years (this percentage includes projections for the rest of 2020). If, as seems likely, this is true for 2021, that means the coming year’s COLA will be less than half of the increase older people will face on their healthcare bills alone. In fact, Social Security recipients have lost 30% of their purchasing power since the year 2000, much of it directly related to health care costs.
Worse still, the costs of healthcare for the elderly are not taken into account in the COLA calculations. Instead, COLAs are determined based on annual data from the third quarter of the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W). When the costs of common goods and services increase, the benefits increase. Unfortunately, the CPI-W does not measure senior-specific spending at all.
Fuel costs, for example, have a significant impact on the CPI-W, but older people generally do not spend a lot of money on fuel. Many do not work and therefore do not drive daily. Even among the elderly who spend more time in their car, fuel costs tend to decrease relative to what they are forced to spend year after year just to maintain their health.
A big change is needed
Whether Social Security seniors are losing purchasing power in 2021 isn’t just a function of meager COLA. Rather, it is a symptom of a poor COLA calculation system in the first place. Leading advocates have long recommended switching to the Consumer Price Index for the Elderly (CPI-E) to determine COLAs — a more targeted index that can properly account for health care inflation. For this to happen, legislators must agree to change the law. Many have expressed reluctance to do so.
Unfortunately, if this situation does not change, the elderly risk losing more and more purchasing power. Given the number of retirees who derive most of their income from Social Security, it is dangerous. While future beneficiaries have the opportunity to increase their savings and set aside funds for health care expenses in retirement, today’s seniors are pretty much stuck unless lawmakers step in. .