Retirement Crisis: Social Security Checks Lost 34% of Purchasing Power Since 2000 Income Investors 2018-07-27 13:09:48 social security social security checks social security benefits retirement crisis This is a look at the latest sign of America's retirement crisis. Social Security Checks have lost 34% of their purchasing power since 2000. Retirement https://www.incomeinvestors.com/wp-content/uploads/2018/07/iStock-485441942-150x150.jpg

Retirement Crisis: Social Security Checks Lost 34% of Purchasing Power Since 2000

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New Study Reveals Shocking Stats on America’s Retirement Crisis

Tens of millions of American are collecting Social Security checks. And for many of them, these checks represent a major source of retirement income. However, the purchasing power of Social Security benefits seems to be on a serious decline, according to a new study.

Last month, The Senior Citizens League published their annual report on the buying power of Social Security benefits. It showed that since 2000, Social Security checks have lost 34% of their purchasing power. (Source: “2018 Loss of Buying Power Study Social Security Benefits Lose 34% Of Buying Power Since 2000,” The Senior Citizens League, last accessed July 25, 2018.)

The culprit is obviously inflation. But to be fair, the U.S. Social Security Administration does take into account the increase in price level. Each year, the Social Security Program calculates a cost of living adjustment (COLA) and applies that to its monthly benefits.

The problem is that the cost of goods and services commonly purchased by retirees have risen much faster than the Social Security Program’s COLA.

In particular, the COLA cumulatively increased Social Security benefits by 46% from 2000 to 2018. However, the study from The Senior Citizens League showed that over this period, typical retiree expenses went up by 96.3%, or more than twice as fast.

The study analyzed the costs of 39 key items typically purchased by senior citizens in the U.S. It found that among those 39 costs, 26 grew faster than the rate of increase in the COLA over the last 18 years.

The table below shows the five fastest-growing costs for retirees since 2000.

Top Five Fastest-Growing Costs for Retirees in the U.S. From 2000 to 2018

Expense Cost in 2000 Cost in 2018 Percentage Increase
Medicare Part B Monthly Premium $45.50 $134.00 195%
Prescription Drugs (Annual Average Out-of-Pocket) $1,102.00 $3,172.72 188%
Home Heating Oil (Per Gallon) $1.15 $3.22 181%
Homeowner’s Annual Insurance $508.00 $1,342.05 164%
Medigap (Extra Health Insurance) $119.00 $306.64 158%

(Source: Ibid.)

Healthcare has gotten a lot more expensive in recent years, so it shouldn’t come as a surprise that medical expenses top this list. From 2000 to 2018, the average Medicare Part B monthly premiums went from $45.50 to $134.00, marking a 195% increase.

Housing-related costs have shot through the roof, and that’s something retirees have to deal with even if they paid off their mortgages. For instance, each gallon of home heating oil costs 181% more than it did 18 years ago. At the same time, homeowner’s average annual insurance premiums skyrocketed 164%.

“When costs climb more rapidly than benefits, retirees must spend down retirement savings more quickly than expected, and those without savings or other retirement income are either going into debt, or going without,” said the study’s author, Mary Johnson. (Source: “ Social Security Benefits Lose 34% of Buying Power Since 2000, According To Latest Study By The Senior Citizens League,” The Senior Citizens League, June 21, 2018.)

In other words, relying entirely on Social Security checks does not seem like a very good retirement plan. Even though the COLA will increase those monthly benefits annually, the rate of increase may not catch up with inflation.

So, what should investors do in this case? Well, I suggest looking into some solid dividend growth stocks. There companies that have been paying increasing dividends for decades, such as the “dividend aristocrats.” And in some cases, companies can increase their payouts at a double-digit clip every year.

When you have a portfolio of stocks that give you an increasing income stream, the rising price level would seem much less daunting in retirement.

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