Make no mistake: A dollar doesn't go as far as it used to. That's true for all Americans, but the loss of purchasing power is especially insidious for Americans 62 and older. This group lives between the proverbial rock and a hard place: fixed incomes plus inflation that tends to run a bit faster than for the general population.
Fortunately, there are some solutions to the problems faced by older Americans who feel squeezed by the ever-rising cost of living.
But first some background: Annual inflation for older Americans rose, on average, 3.3% from December 1982 to December 2007, according to the federal Bureau of Labor Statistics' Experimental Consumer Price Index (CPI-E), an index designed to track the cost of living for those 62 and older.
By contrast, inflation overall for workers rose just 3.1%, according to the Consumer Price Index for All Urban Consumers (CPI-U). To be sure, the 0.2-percentage-point difference might not seem like a lot, but it can add up over time, especially if you're living on a fixed income. Consider: $1 in 1983 was worth just 45 cents in 2007 for those 62 and older, compared with 47 cents for Americans in general.
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According to a BLS report (.pdf file), the Experimental Consumer Price Index rose somewhat faster mainly because prices for medical care and shelter, which are weighted more heavily in the CPI-E, increased more rapidly than overall inflation during the period.
Housing and health care, not surprisingly, are two of the top three expenses seniors have. Housing represents 34%, or $12,396, of average expenditures for Americans 65 and older, and medical care represents 12.7% of expenses, or $4,631, according to another BLS report, "Consumer Expenditures in 2007" (.pdf file). Transportation is the second-largest expense, representing 16% of expenses, or $5,785.
Earlier this month, the Senior Citizens League released a report showing that seniors have lost 20% of their purchasing power since 2000. In other words, $1 from nine years ago is now worth just 80 cents. And when you look at housing and health care costs, that loss of purchasing power is even more dramatic:
| 2000 | 2009 | % increase | |
|---|---|---|---|
Homeowners insurance | $492 | $789 | 60% |
Real-estate taxes | $690 | $1,224 | 77% |
Heating oil, 1 gallon | $1.25 | $2.45 | 96% |
Medicare Part B monthly premiums | $45.50 | $96.40 | 112% |
Given that rate of inflation, what can retirees and would-be retirees do to protect themselves?
1. Don't count on Social Security adjustments
The Senior Citizens League notes that "seniors receive a small increase in their Social Security checks, intended to help them keep up with the costs of inflation." But since 2000, the Social Security cost-of-living adjustment, or COLA, has increased average benefits just 31%, while typical senior expenses have risen more than 58%, the group says.According to the Senior Citizens League: "A senior with the average Social Security benefit in 2000 received $816 per month, a figure that rose to $1,072.30 by 2009. However, that senior would require a Social Security benefit of $1,288.60 per month in 2009 just to maintain his or her 2000 lifestyle."
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To help increase buying power, the league says it is lobbying for a change in the index used to determine the Social Security COLA. By tying the COLA to the CPI-E, seniors would see much-needed relief in their monthly checks, the league said.
"For example, a senior who retired with a benefit of $460 in 1984 would have received $12,014 more over the past 26 years with the CPI-E," the league reports.
Though tying the COLA to the CPI-E could help many seniors who rely largely on Social Security, there may not be any political will to change how the COLA is calculated, given the latest trustees report on Social Security and Medicare. Social Security is projected to exhaust its reserves by 2037, and Medicare will do so by 2017, according to the report.
One looming problem: The Congressional Budget Office is projecting no COLA increases from 2010 through 2012. And that, according to the Senior Citizens League, means seniors will likely fall even further behind if medical costs continue to climb as forecast.
Continued: Live within your means
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