Consumer prices jumped 8.5% a year in March, marking the fifth consecutive month of inflation at a 40-year high. While soaring inflation undoubtedly affects all American consumers, it may place a greater financial burden on seniors who rely on fixed incomes from Social Security, according to Mary Johnson, policy analyst at Senior Citizens. League (TSCL).
Average Social Security benefits for retirees rose by $92 a month in 2022 thanks to the 5.9% cost-of-living adjustment (COLA), but Johnson said that wage increase was insufficient to keep up the current inflation rate. She estimates the 2022 COLA has been $162.60 lower this year so far due to rising consumer prices.
“Inflation doesn’t just mean higher prices, for many retirees it also means less savings and more debt,” Johnson said.
The short-term impact of inflation is already being felt by recipients who depend on a fixed income from Social Security. A recent TSCL survey found that 43% of senior households have consumer credit card debt, which could become more expensive as the Federal Reserve raises interest rates to offset rising inflation.
Keep reading to learn more about the impact of inflation on Social Security recipients. And if you’re struggling with higher debt payments due to Fed rate hikes, you might consider paying off variable-rate credit cards with a fixed-rate personal loan. This ensures that your monthly payments stay the same even if inflation drives up interest rates. You can read more about credit card consolidation on Credible.
WHAT YOU NEED TO KNOW ABOUT SOCIAL SECURITY IN 2022
Older households face ‘falling living standards’ amid inflation
Recent COLA increases not enough to keep up with inflation, says a TSCL analysis. Social Security benefits have lost 32% of their purchasing power since 2000, especially when it comes to costs such as food, housing and prescription drugs.
The erosion of Social Security’s purchasing power is leading many older people to withdraw more of their savings, Johnson said. Inflation can also decrease the value of fixed investments like bonds and certificates of deposit (CDs).
“While these investments are often touted as ‘safer than stocks,’ total return from either type can erode due to the effects of inflation,” Johnson said.
With less savings and lower investments, Johnson said older people are “facing a declining standard of living”. In late 2021, TSCL received hundreds of emails from Social Security recipients “describing the dire situations they face as rapidly rising inflation makes it impossible to pay bills.”
If you’re struggling to cope with the rising costs of a fixed income, one strategy to consider is debt consolidation. It may be possible to reduce your monthly debt payments by consolidating credit card balances into a fixed rate personal loan. You can visit Credible to compare personal loan rates for free without affecting your credit score.
LEGISLATIVES SEE SOCIAL SECURITY ACT 2100 TO PROTECT FUTURE BENEFITS
Inflation could lead to an 8.9% increase in COLA in 2023
The Social Security Administration (SSA) determines its annual benefit adjustments using the Consumer Price Index for Urban and Clerical Workers (CPI-W), an inflation indicator from the Bureau of Labor Statistics.
While Johnson had previously estimated a 7.6% increase in Social Security COLA for 2023, she recently changed her prediction to 8.9% following new CPI-W data released in March. If Social Security benefits increase by 8.9% next year, the average retiree benefit would rise to about $1,804.
This would mark a significant wage increase for Social Security recipients, but it wouldn’t be the first time the SSA has raised benefits at such a high rate. The highest COLA on record was 14.3% in 1980, at a time when inflation was also rising at a breakneck pace.
Yet a long-term adjustment to social security benefits will not help older people who are struggling to keep up with current price increases. To offset the short-term impact of soaring inflation, TSCL is asking Congress to issue a $1,400 stimulus check to Social Security recipients.
However, policymakers have yet to announce their intention to issue another stimulus payment, meaning retirees may have to find other ways to cut costs. One method is to consolidate higher interest rate debt into a lower rate personal loan. You can browse the current interest rates in the table below and use Credible’s personal loan calculator to estimate your monthly payment.
SOCIAL SECURITY BENEFITS COULD BE REDUCED EARLIER THAN EXPECTED
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