Consumer prices surged in April, dramatically cutting the buying power of seniors and the disabled, whose Social Security benefits are still anchored in the tame inflation rates of yesteryear.
- Consumer prices have soared this year, with the Bureau of Labor Statistics saying they rose at the fastest clip in 12 years in April, bringing the year-over-year rate to 4.2%.
- The surge far exceeds the 1.3% cost of living adjustment increase seniors and the disabled started getting this year in their Social Security payments.
- About 65 million people each month receive Social Security benefits, which is the major source of income for many of them.
Retirees, disabled workers, and their dependents in January started receiving a cost of living adjustment (COLA) of just 1.3% to their 2021 Social Security benefits. That adjustment is well below the inflation rate reported by the Bureau of Labor Statistics on Wednesday, which showed that the overall Consumer Price Index (CPI) in April grew by an unadjusted annual rate of 4.2%, marking the fastest pace in 12 years.
Those numbers “are a rate of inflation that I’ve never seen in the 20+ years I’ve been tracking this data,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, in an email.
The mismatch between the COLA and the inflation rate has been hammering seniors’ buying power, with prices up on items from food to travel to used cars.The cost of living increase in Social Security benefits is based on the third-quarter, year-over-year change in a subset of the CPI. So this year’s COLA reflects the increase in that subset from third quarter 2019 to third quarter 2020, a time when inflation was low because of the COVID-19 pandemic and its adverse effects on the economy, and it’s the smallest increase since 2016.
Johnson, who uses the 12-month average rate of inflation to project COLA for the next year, said she now estimates the COLA for 2022 to be 4.7%, which would be the highest since 2008.
But “the challenge for retirees is how to pay for these costs today,” Johnson wrote. “A higher COLA would not be paid until 2022 and will be welcome, but inflation would need to start falling in order for the Social Security benefits of retirees to regain their buying power.”
Johnson admitted that much of her COLA estimate for 2022 is based on a surge in gasoline prices, which rose to a national average of $3 per gallon on Wednesday, the highest level since fall 2014. But she also noted that even when energy is taken out of the equation, inflation is on the rise, up 2.9% year-over-year in April and more than twice the 1.3% increase in payments Social Security beneficiaries are receiving this year.
In 2021, an average of 65 million Americans per month will receive a Social Security benefit. Based on 2017 data, about 90% of people aged 65 or older collect Social Security, and among those, 50% of married couples and 70% of unmarried people receive at least half of their income from those benefits.