Is Social Security Forcing Older People onto Welfare?

Disclaimer: Views expressed in Bob’s Blog belong solely to the author and do not purport to reflect the opinions or views of the CAC Office in Aging or its staff. 

Over time, everything gets more expensive. There’s no way we can avoid it.

The prices of houses rise. The same is true for automobiles. Even the cost of the food we eat, clothes we buy and the medicines we take increase.

Most of us never paid much attention to rising costs while we were working. Normally, our pay increased or we found jobs paying more money. Those pay increases normally were more than the increase in the prices of what we purchased.

A big change happened when we started to receive monthly Social Security benefits. Most of us now are on fixed incomes.

We Have to Rely on the Social Security Administration to Protect Us from Prices Increasing on What We Buy

Every year, the Social Security Administration is required to check to see if there has been any inflation during the year. If there is, our Social Security payments are supposed to be increased to offset the rise in prices due to the inflation.

That way every person receiving Social Security payments will have as much buying power as they did before. They won’t suffer from the rise in prices.

That’s the Way It’s Supposed to Work.

Every October, the Social Security Administration lets the American public know how much, if any, each person’s monthly Social Security benefit will increase to offset the increase in prices. This is called a Cost of Living Adjustment.

In October of 2020, the Social Security Administration announced people receiving monthly Social Security payments would see an increase of 1.3% in their payments starting in January of 2021.

The Problem

The cost of those items people receiving Social Security payments spend their money on frequently has increased more than 1.3%. Even with the larger monthly Social Security payment, they may lose money.

Over the years, this Cost of Living Adjustment has not kept pace with inflation. A person’s monthly benefit does not go as far as it did the year before. An analysis in 2020 revealed people who started to receive monthly Social Security payments in 2000 saw their buying power shrink by 30% from then to 2020.

In 2000, the average monthly Social Security benefit a person received was $816. With the Cost of Living increases that occurred from then until 2020, the average monthly payment increased to $1,246.30. That added up to a 53% increase.

That was not enough. The person’s monthly benefit would have had to increase to $1,626.20 for them to have the same purchasing power they had in 2000.Their $1,246.30 was 33% less than what they needed.

To Get a Clearer Picture, Let’s Look at the Impact of This on a Woman Whose Husband Just Died

John and Mary had been married for 50 years. In 2020, each one celebrated their 85th birthdays.  They both started to receive Social Security benefits when they retired in 2000. John’s monthly benefit then was $816 a month.  Mary’s was $800.

Over the years, both of their benefits had increased because of the Cost of Living adjustments. In 2020, John’s month benefit increased to $1,246.30 and Mary’s to $1,221,87.

They had a small amount of savings when they retried.  Their main source of income was their monthly Social Security benefits.  Over the years, prices on many of the products they needed rose. In addition to that, there was the financial downturn in 2008 and the Covid-19 pandemic in 2020.

They managed their money wisely. However by 2020, they had no savings left.

In August of 2020, John had a massive stroke and died.

With his death, his monthly Social Security benefit stopped. Mary was not entitled to both his and hers. She was eligible for survivor benefits and her monthly benefit increased to $1,246.30. She no longer was eligible for the $1,221.87 she was getting.

She Now Had to Live on $1,246.30 a Month.

Mary had to scramble to figure her finances out and her lifestyle changed dramatically.

The rent on her and John’s apartment was $900 a month. If she continued to live there, she would be left with $346.30 to cover all of her other expenses each month after she paid the rent.  That was just not enough.

Mary no longer had the money to buy the groceries she needed nor to pay all of her other monthly expenses. She cut costs wherever she could.  To cut down on her grocery bill, she started getting meals through the Mobile Meals program. She also visited Food Pantries to get food they offered.

She quickly realized she could no longer live in the apartment she had with John. She applied for an apartment through the Knoxville Community Development Corporation (KCDC). If she could get one of their apartments, the rent would be based on her income and substantially lower.

The sooner she could get an apartment through KCDC, the better off she would be. The problem was the waiting list for an apartment through KCDC. At the time she applied, this waiting list was 6 months or longer.

You May Think Cases like John and Mary’s are Rare

Actually, they are fairly common.

In the United States, 28% of people working today say Social Security will be their main source of retirement income. For 40.2 % of Americas 60 and older, their monthly Social Security check is their only source of income.

Many whose only source of income is their Social Security benefits very quickly realize they cannot live on those benefits. They are forced to get part-time and full-time work to supplement what they get from Social Security.

Think about that.

It is pretty easy for people in their 60’s and early 70’s to get work.  As people age, it gets tougher and tougher for them to find work. It is almost impossible for a person in their mid-70’s or older to get a job. By that age, many have health problems and cannot work.

Why Haven’t Social Security’s Cost of Living Adjustments Kept Pace with Inflation?

These adjustments are determined by a consumer price index. Right now, there are several different indices here in the United States. The one used to calculate the Social Security adjustment is the Consumer Price Index for Urban Wage Earners and Clerical Workers. This particular index does a very poor job of tracking the inflation seniors are experiencing.

This particular index tracks the spending habits of urban wage earners and clerical workers. The majority of these people are under 62. They spend their money on items that people over 62 and retirees don’t buy

Two big expenses for people 62 and older are medical care and housing. They spend far less on clothing and education than younger people do.

A Consumer Price Index for the Elderly is being developed. This index will track the spending habits of people 62 and older.

Congress agrees the Consumer Price Index for Urban Wage Earners and Clerical Workers does a poor job of measuring the inflation impacting people who receive monthly Social Security payments. The issue is Democrats and Republicans cannot agree on what index to use instead.

Democrats and Republicans Can’t Agree on a Replacement

Democrats are inclined to replace the current one with the Consumer Price Index for the Elderly.

On the other hand, Republicans have proposed changing to a chained CPI.

Let Me Try to Explain a Chained CPI

You and I have seen prices increase over the years. As the prices of certain items have gone up, we may have stopped buying them and switched to less expensive items.

An example is steak. As the cost of steak has increased, some people have stopped buying it as frequently or altogether. They bought chicken or pork instead because it was cheaper.

The chained CPI tracks the increase in the costs of these less expensive items. It shows the rate of inflation increasing much slower than that in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

If the Chained CPI is used, Cost of Living Adjustments Will be Lower

People receiving Social Security would see their purchasing power erode even more.

Democrats and Republicans are far apart on this. There is no indication when they might come to agreement. The longer they delay on the action to take on this Cost of Living issue, the more we will see our purchasing power erode.

We need to take action.

Contact Congressman Burchett, Senators Alexander and Blackburn and Incoming Senator Hagerty

Let them know you are concerned and would like to see this matter resolved as quickly as possible.

Until congress addresses this issue, you, I and everyone receiving Social Security benefits will continue to see our purchasing power erode.


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