Aging Americans are losing their buying power, and that can mean bad news for the generations behind them.
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A new survey from the Seniors Citizens League shows seniors have lost almost one-third of their buying power since 2000, and that can hurt the recovery since nearly two-thirds of our economic growth is made up of consumer spending.
The findings are the same as last year, which means there is no improvement in the buying power of Social Security benefits and that can make it hard for older consumers to make ends meet. A majority of the 37 million Americans age 65 and over who receive a Social Security check depend on it for at least 50% of their total income, according to the survey. What’s more, one in three beneficiaries rely on it for 90% or more of their total income.
I had a chance to speak with Mary Johnson, a Social Security policy analyst for The Senior Citizens League (TSCL) about the survey’s findings, and what seniors can do to cope in retirement with their reduced buying power. Here is what she had to say:
Boomer? What costs have risen that impact boomers, and what can they do to cope with the smaller buying power in their retirement?
Johnson: The cost of virtually all goods and services that seniors spend their money on typically rises over time, and although there can be periods when some items may “stagnate” or even “deflate”— don't count on it. Housing, health care, transportation and food make up retirees’ biggest costs. To cope, boomers should aim to live beneath their means: Less now will mean more later.
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With seniors facing retirements that may last 30 years or more, it's critical to understand the impact that rising costs have on the buying power of Social Security and other retirement income over time in order to anticipate and plan budgets, and even more importantly—make retirement savings last.
Social Security is the major source of income (providing at least 50% of total income) for more than 65% of beneficiaries, but when costs rise faster than Social Security benefits, seniors have to dig deeper into savings to make up shortfalls.
Boomer: Does Congress have the power to cut Social Security benefits of baby boomers?
Johnson: Yes. Not only does Congress have the power to cut Social Security benefits, Congress has done so before. In fact, Congress made major changes in 1983 that cut boomers' benefits. Congress raised the age in which boomers are eligible for full retirement benefits from 65 to 67, and those changes also raised FICA taxes.
Boomers paid higher payroll taxes during their working careers than previous generations. In case anyone has any doubts, the Supreme Court decision Flemming vs. Nestor rejected the argument that workers have a contractual right to Social Security benefits. The only thing standing between Congress and benefit cuts are boomer voters.
Boomer: What did the study show has been happening to seniors on social security since 2000?
Johnson: Social Security benefits have lost 31% of buying power since 2000. In most years, seniors receive small increases in their benefits intended to protect the buying power of their benefits. But since 2000, the Social Security cost-of-living adjustment (COLA) has increased benefits just 41% while typical senior expenses have jumped 84%--more than twice as fast. Inflation has been at historic lows over the past five years, and seniors received a COLA of just 1.5% this year.
Boomer: Do boomer seniors receive an increase in their monthly income and why?
Johnson: Yes. Not only do boomers who have started Social Security receive an annual boost, but even boomers who haven't started benefits yet are getting COLA increases. Those increases are used in the Social Security benefit formula to determine the initial retirement benefit. The historically low COLAs occurring now will impact boomers with somewhat lower retirement benefits than they would have received if inflation was at its more normal level of 2.8% - 3%.