How will decreased buying power affect my retirement?

The buying power of Social Security has dropped 36% since 2000, meaning the oldest adults who retired before 2000 would need more than $500 a month extra just to maintain the same level of buying power, according to a new study by the Senior Citizens League, a pro-senior think tank. 

The Senior Citizens League also said it expects the 2024 cost-of-living adjustment for Social Security to be 3.1% or lower, compared with the 8.7% increase in 2023’s COLA. 

The buying power of Social Security benefits can erode when the annual COLA fails to keep pace with rising costs. Inflation is now moderating but the lower rate of inflation has not necessarily meant that prices have come down, according to Mary Johnson, a Social Security and Medicare policy analyst for the Senior Citizens League. 

This year, the study found that the loss of buying power slightly improved — by 4 percentage points — to 36% from 40%. However, this year’s number is still one of the deepest losses recorded by the study, exceeded only by the loss in 2022. Last year’s drop was the deepest loss in buying power since the start of the study in 2010. 

How the buying power adds up 

The average Social Security benefit is $1,827 per month in 2023, according to the Social Security Administration. To maintain the same level of buying power as in 2000, it would take $516.70 for those aged 85 and older who retired before then, Johnson said. 

The prices consumers are paying are not rising as fast as a year ago, but many prices on key items through February 2023 remain stubbornly high. The declining rate of inflation points to a significantly lower COLA for next year, Johnson said. 

The study compared the growth in the COLA since 2000 with increases in the price of 38 goods and services typically used by retirees over the same period. This year’s buying power was most affected by sharp increases in food items, electricity, rental housing, repair and maintenance costs of motor vehicles, plus a 16% increase in the cost of dental care.  

Topping the list of fastest-growing items? Eggs. No other spending item on the list grew faster during the survey reference period, which compared the average price change from February 2022 to February 2023.

“Without an accurate cost of living adjustment (COLA) that keeps pace with rising costs, beneficiaries lose purchasing power, especially over the course of a retirement that could last 25 to 30 years,” The Senior Citizens League said. “This loss is cumulative and grows deeper as retirees age. It can cause significant hardships, including more rapid depletion of savings than expected, growing debt and worse health outcomes. In short – a significant deterioration in an older household’s standard of living.” 

From January 2000 to February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually. Meanwhile, the cost of goods and services purchased by typical retirees rose by 141.4%, averaging about 6.2% annually over the same period. For every $100 a retired household spent on groceries in 2000, that household can only buy about $64 worth today, the group said.  

“For long-retired people, this has a major impact. For people in their 80s, that’s usually the time they’re spending through their savings, maybe needing long-term care, and potentially on tighter budgets,” Johnson said. 

But, even if you have already entered retirement, there are still some things you can do to plan ahead and combat these startling statistics. The first is to meet with a retirement planning professional, such as Summerlin Benefits Consulting, to explore your options.

One such option to consider is a Fixed Index Annuity (FIA). FIA can protect your nest egg during down markets, and many can even offer a reasonable rate of return during up markets. Some FIA products also offer lifetime income and long-term care benefits that can help with a higher cost of living later in life. Having this retirement “paycheck” from a fixed index annuity might give you the peace of mind you’re looking for, especially during uncertain times like those we are living in today.  

If you would like to learn more about Fixed Index Annuities, please reach out today to schedule your no-obligation meeting with our financial professionals, Stacy and Keith Summerlin. Our primary objective when meeting with our clients is to keep things simple and easy to understand. We can guide you through your options and help you feel more secure about retirement!