CHAMPAIGN, IL (Chambana Today) – With inflation rising at its fastest pace in nearly four decades, older Americans are finding their retirement savings and Social Security benefits stretched thin. The annual cost-of-living adjustment (COLA) provided by Social Security is meant to ease the impact of rising prices, but for many seniors, it’s simply not enough to keep up with their increasing costs—especially healthcare.
Richard L. Kaplan, the Guy Raymond Jones Chair in Law at the University of Illinois, and a nationally recognized expert on U.S. tax policy and retirement issues, recently spoke with News Bureau business and law editor Phil Ciciora about the implications of inflation on retirees’ pocketbooks and the broader future of Social Security.
Social Security’s COLA, which rose by 5.9% in 2022, is designed to offset inflation. While this increase offers some relief, Kaplan notes that it does not fully address the rising costs that many older adults face, particularly when it comes to healthcare.
“The government’s Consumer Price Index (CPI), which is used to calculate the COLA, doesn’t fully reflect the spending habits of seniors,” Kaplan explained. “Healthcare costs—like doctor visits, prescription medications, and treatments—are rising, but these expenses aren’t adequately captured in the CPI. As a result, the COLA, while helpful, doesn’t fully offset inflation as seniors experience it.”
Many retirees are seeing their medical bills grow faster than their Social Security benefits, creating a gap between what they receive and what they need to cover their basic expenses.
Inflation has been a major issue for seniors, but there is some hope that it may subside in the coming months. However, Kaplan warned that even if inflation weakens, future COLA increases could be smaller—or in some cases, eliminated altogether.
“If inflation slows down, next year’s COLA could be significantly smaller,” Kaplan said. “There’s even a possibility that the adjustment could be zero, depending on how inflation plays out in the coming year. This has happened in the past, and it’s something retirees will need to consider.”
Inflation and market volatility aren’t the only challenges facing Social Security. The COVID-19 pandemic has reshaped many aspects of the U.S. workforce and accelerated the pace at which people retire. According to Kaplan, this shift has placed additional strain on the Social Security system.
“When the pandemic hit, many older workers who were already eligible for Social Security benefits chose to retire earlier than they might have planned,” he said. “At the same time, younger workers who contribute to the program were either laid off, had their hours reduced, or, tragically, passed away due to COVID-19. This has resulted in fewer people paying into Social Security while more people are drawing from it.”
While the pandemic accelerated some of these trends, it also caused a significant reduction in life expectancy. The U.S. Census Bureau reported that life expectancy declined by 1.8 years in 2020, the largest such drop in a long time. Kaplan suggests that this may, in some ways, reduce the overall cost of the program, as Social Security will be paying out benefits for a shorter period in many cases.
The question now is whether policymakers will act in time to address these challenges. As inflation continues to affect seniors’ finances, it remains to be seen if the government will take meaningful steps to ensure that Social Security remains a reliable safety net for older Americans.