For the fifth year in a row, the 60 million people who depend on Social Security have had to settle for historically low increases. For the average recipient the adjustment adds up to a monthly increase of less than $4 a month.
Meanwhile, older Americans report that their household budgets jumped substantially last year, despite the lack of growth in their Social Security benefits, according to a new survey by The Senior Citizens League (TSCL).
“The gap between benefit growth and retiree costs was particularly pronounced due to rising prices of the most essential items in retirees’ budgets, — medical and food costs,” says Mary Johnson, TSCL’s Social Security and Medicare policy analyst. TSCL sent a letter this month to Congressional leaders calling upon them to enact legislation that would provide a modest boost to Social Security benefits.
Johnson discussed with FOX Business these additional findings from the survey, and what you need to know to adjust your household budget.
Boomer: To what did the survey attribute the substantial jump in household budgets for seniors?
Johnson: Two factors. Spending needs typically grow in retirement, and, an extremely low annual cost-of-living adjustment (COLA). Unfortunately the spending jump isn’t unusual, but a pattern that typically occurs in retirement. This is something we can try to plan for in retirement, but it’s also a trend that needs to be addressed by our elected lawmakers in order to maintain the adequacy of Social Security benefits for all Americans.
Over any retirement our needs change. We require more medical services and prescription drugs, our need for different housing and supports like transportation services grow, and life events, like caregiving, or the death of a spouse, have a big impact on spending.
Annual surveys conducted by The Senior Citizens League since 2014 confirm this. About 90 percent of survey participants report that their household budgets rose by at least $39 per month over the 12-month period, in each of the past four years. In each year, the largest percentage of survey participants — 37% in 2017 —report that monthly expenses rose by more than $119. This year survey participants said their biggest cost jumps were for medical expenses and food — two categories that are essential.
The second factor in addition to the typical trend of rising spending over time, are recent low annual Social Security COLAs. The COLA isn’t doing its job keeping pace with the inflation experienced by the majority of retirees.
Boomer: Why is there such a gap between retirees Cola and their spending?
Johnson: A major problem is the consumer price index (CPI) that the government uses to determine the annual boost. One would think that the CPI used to calculate COLAs for retirees would be based on the spending patterns of older people, but it is not. Instead, the COLA is determined by the growth in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Younger working adults spend a much smaller portion of their income on medical costs, and spend more on transportation and gasoline, categories that have gone down dramatically in recent years. This tends to understate the inflation experienced by the majority of people receiving Social Security who spend more on medical costs and less on transportation and gasoline.
There is a better choice of CPI for calculating the COLA, the Consumer Price Index for the Elderly (CPI-E). It gives greater weight to healthcare and housing, two categories that form a bigger share of spending for older households. The CPI-E would for example have paid a COLA of 0.6 percent in 2016 instead of zero, and 1.5 percent this year instead of 0.3 percent.
Boomer: What can pre retirees do to prepare for the cost of living increases in their household budgets in retirement?
Johnson: Work out a household retirement budget, using spending records from several years back. Think ahead for big costs, like transportation needs, replacing a roof or appliances. Find professional help with the hardest part like planning for growing medical and housing costs in the later part of life. If you don’t have a financial advisor, check your local senior centers, or for classes in your area that can help. The National Council on Aging has a free online tool called “EconomicCheckUp” that’s a great way to get started.
Boomer: Are there any legislative proposals in the works that would boost Social Security benefits?
Johnson: Yes! The Social Security 2100 Act (H.R.1902) would not only keep the Social Security system solvent over the next 75 years and beyond, it would also boost benefits. The bill is estimated to provide both current and new beneficiaries with an average of about $300 more per year. The legislation would also base the Social Security COLA on the Consumer Price Index for the Elderly (CPI-E). According to my estimates, that would boost the current average monthly benefit about $75 after 20 years in retirement. The bill was introduced with the support of 156 original co-sponsors — more than any other comprehensive Social Security reform bill to date. TSCL believes the bill would go a long way in ensuring the retirement security that older Americans have earned and deserve.
To read more, please visit: http://www.foxbusiness.com/features/2017/05/07/social-securi...