How Social Security benefits have lost 20% of their purchasing power 

How have Social Security benefits kept up with inflation? With 97 percent of older adults (aged 60 to 89) either receiving Social Security or will it’s imperative to measure the impacts of inflation against Cost of Living Adjustments (COLAs). 

The Senior Citizens League, a nonpartisan group that monitors and advocates for senior benefits such as Social Security and Medicare found that Social Security benefits have lost 20% of their purchasing power since 2010 despite cost-of-living adjustments

Crunching the Numbers

Their study states, “A retiree who is 75 years old today would have been about 60, paying

into the program during the tail end of their peak earning years.8 The average benefit would need to be $2,230.46 to recover the 20 percent loss in buying power. That’s a difference of $370.23 per month or $4,442.80 per year”.

The underlying cause is cost-of-living-adjustment lagging behind inflation in eight of the last 15 years. Only the 2023 cost-of-living adjustments exceeded inflation when Social Security recipients received an 8.7% boost in benefit payments.

Cumulative Impacts

The cumulative effects of insufficient adjustments and higher-than-normal inflation have pushed many retirees into financial insecurity. The rate of inflation exceeded Social Security cost-of-living-adjustments in the early 80s as record inflation reached 13.5% in 1980 before retreating to approximately 3.5 percent in the last half of the 1980s. 

To illustrate the point The Senior Citizens League gives this example. “Imagine that you retired with a monthly benefit of $1,000 in 2009. The next year, you get a COLA of 0.0 percent and inflation of 2.7 percent. Now, your payment is still $1,000, but would need to be $1,027 to be worth the same as it was the year before. Then, in 2011, you get knocked down even further with a COLA of 0.0 percent, compared to inflation of 1.5 percent. Suddenly, your payment is still $1,000, but would need to be $1,042 to maintain the same worth as when you retired—you’ve lost 4.2 percent of your buying power. From there, even if COLAs perfectly matched inflation over the next 10 years, you’d never recover your lost buying power.”

Compounding matters are key services that older Americans rely on in retirement. The League found that from 2010 to 2024 transportation costs increased 96%, communication by 92%, housing by a whopping 81%, food by 56%, and medical services by 50%.

The challenge for reverse mortgage professionals is to find older homeowners who find their purchasing power lagging behind real expenses and those with the required equity to qualify for a reverse mortgage.