Question of the week: Will my Social Security payments keep pace with inflation?


A common belief about social security is that YOUR benefit payments will keep pace

with inflation over the long haul. Sadly, as many current retirees know [including the one who attended my class recently] …this is not the case.

I’ll share some data with you in a moment, but first, some anecdotal evidence. Recently, I had a student who brought his 90-year-old father to retirement class. Not only was this a great reminder of how long people live these days, but it was so wonderful to have the input of someone who has received benefits.

Being that Grandpa had put in his time, he had earned the right to tell us how he felt without mincing words and, suffice it to say, he felt that his check wasn’t going nearly as far. Certainly as compared to his earlier years of collecting benefits.

His language was a bit saltier but that was his take! Here’s some recently released information.

The Senior Citizens League’s study, titled "2017 Social Security Loss of Buying Power Study," examined how seniors receiving Social Security benefits are doing when compared to their monthly expenses. Their overarching conclusion:

Social Security Benefits have lost 30% of Buying Power Since 2000.

Motley Fool reported on the findings:

Current retirees are arguably getting the short end of the stick when it comes to Social Security's cost-of-living adjustments (COLA). COLA is the "raise" that beneficiaries expect to receive each year to match the rate of inflation -- only it's not coming close, in most instances, to representing the true inflation that seniors are contending with.

Let’s put that in perspective based on this new reporting. Simply, $1000 in Social Security income purchased in 2000 now buys about $700 worth of goods and services. (Side note: I wonder if the Grandchildren are noticing a reduction in the size of their birthday gifts…)

Over the past eight years, Social Security's COLA (adjustment) has been 0% three times. This year the increase is just 0.3%, which represents the smallest year-over-year increase on record. Meanwhile, 26 of the 39 goods and services examined by the study increased at a faster aggregate pace than Social Security's COLA between 2000 and the present. Topping the list were Medicare Part B monthly premiums, which are up 195% over that time frame; annual out-of-pocket prescription drug costs, up 184%; and homeowner's insurance, up 154%.

The questions I would ask: How much will this affect my retirement and what should I do about it.

First a question - Do retirees lean heavily on Social Security?

Of course, every situation is different but we can get a sense of social security as a percentage of retirement income from the helpful book – The New Rules of Retirement: Strategies for a Secure Retirement.

For many, Social Security replaces 28% of preretirement income. For low-income beneficiaries, it can replace 90% of preretirement income. On average, benefits are estimated to provide about 40% of the average retiree’s income.

Depending on your income, there could be consequences if the prices of normal (but necessary) expenses are climbing at a greater clip than your social security benefits.

What to do?

I instruct future retirees to error in the side of caution when considering the insidious effects of inflation. (Both how much Social Security payments will rise and how much the prices you pay for the basics will increase.) Whatever you do, I would suggest, at the very least, that you look at your retirement picture with at least a 3% (year over year) inflation rate. (Numerous sources have the inflation rate for the last 50 years at 3.22% or so.)

Please also remember that inflation, as it pertains to health care costs, is much higher. Perhaps twice as much. As I type this, health care is very much all the rage with Obamacare Law on the ropes – if you will. Sadly, and this is just my opinion, but I don’t see health care costs going down for the middle class. I see current leadership with a desire to shrink benefits (Medicare, Social Security, etc.), not only for people who desperately need it, but also for you and me.)

Over time that’s going to consume more and more of your retirement budget.

That’s just the way it works!


Recent Posts

See All

Are your 401(k) costs going up?

As if things weren’t hard enough, this headline caught my eye the other day. As 401K Assets Fall, Investors Could Pay Higher Fees. Here’s some background: As part of the CARES act, 401(k) participants

Darryl Rosen MBA, RICP

Darryl Rosen is the founder of Rose Advisory Group, and operates www.RealRetirementAdvice.com as a way to help others create their ideal retirement. He is obsessed with helping people create safety, simplicity and strength in their financial future. Darryl’s clients enjoy his straight-forward, plain-spoken guidance, strategies to minimize taxes and ability to generate investment returns, while minimizing risk so his clients can sleep at night! Darryl is licensed to provide guidance on securities and insurance solutions and has achieved the highly desired Retirement Income Certified Professional (RICP) designation.

Darryl is the creator of the well-known SECURiMENT™ Retirement Planning Method. A simple to understand and implement planning method that demystifies retirement planning so that people can take action. Visit Rose Advisory Group to learn more! 

Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor.  BCM and (Rose Advisory Group) are independent of each other.   Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Information provided is not intended as tax or legal advice, and should not be relied on as such.  You are encouraged to seek tax or legal advice from an independent professional.