The Growing Problem of Reduced Spending Power for Seniors

July 10, 2018 | by the National Care Planning Council

According to a survey released in May 2013 by The Senior Citizens League, seniors have lost 31% of their buying power since 2000. In terms of monthly outlays, the typical household in 2013 composed of individuals over the age of 65 would only have 69% of the available income to pay for necessities and other items as opposed to a household in 2000 which would have had 100% of equivalent income for outlays.

According to Larry Hyland, president of the organization, "This survey illustrates why budget proposals that would cut the growth of COLAs would put millions of older and disabled Americans at risk of insufficient income to cover more growing expenses," "to put it in perspective, for every $100 worth of expenses seniors could afford in 2000, they can afford just $69 today," Hyland adds.

A senior with the average Social Security benefit in 2000 received $816 per month, a figure that rose to $1,129.80 by 2013. However, that senior would require a Social Security benefit of $1,477.00 per month in 2013 just to maintain his or her 2000 buying power.

The study examined the increase in costs of 32 key items between 2000 and January 2013. The items were chosen because they are typical of the costs seniors must bear. Of the 32 costs analyzed, 20 exceeded the COLA. The selected items represent eight categories, weighted by approximate expenditure.

A majority of the 54 million senior and disabled Americans who receive Social Security depend on it for at least 50 percent of their total income, and one in three beneficiaries rely on it for 90 percent or more of their total income.

It should be noted, that Social Security cost-of-living increases are tied to the CPI which is in turn based on the cost of a market basket of goods and services used by the average consumer in the United States. CPI surveys are done on a routine basis and the increase in the CPI from year- to-year is used as one measure of inflation. This should mean that Social Security income should be keeping pace with the cost of inflation since Social Security cost-of-living is based on what is considered the standard measure for inflation in this country.

Unfortunately, seniors typically consume much more healthcare than the average American and therefore healthcare should be weighted more heavily if the CPI were to apply solely to seniors. The cost of healthcare has been increasing significantly faster than the CPI over the past 20 years. It is likely that healthcare, which includes prescription drugs, is one major culprit that is eating into the buying power of seniors incomes. A principal reason why health care spending is has a greater impact among the elderly is that a much higher proportion of the elderly than the non-elderly have expensive chronic conditions.

A report, which appears in the Journal of General Internal Medicine, looked at data from more than 3,000 people covered by Medicare in 2002-2008 to gauge the impact of health care cost on seniors. Researchers measured how much Medicare-eligible seniors had spent out of pocket on healthcare in their last five years alive, and looked at how those costs weighed on their total household income.

After crunching the numbers, the report found that during that time period, more than 75 percent of Medicare-eligible households spent at least $10,000 out of pocket on health care. Spending for all participants during those last 6 years averaged $38,688, and for the remaining 25 percent the average expense was even greater: they spent a whopping $101,791 out of pocket. A quarter of participants also spent "more than their total household assets on healthcare," according to the report.

It isn't just medical services that are eating into the buying power of seniors. A new report from the AARP's Public Policy Institute says the prices of drugs used most often by older Americans went up by nearly 26% from 2005 to 2009. The rate was almost twice that of inflation, which was 13% over that period of time. In 2009, drug prices rose 4.8% even though the inflation rate was -0.3%.

Increasingly, it appears that the government is not taking care of its aging seniors. There do not seem to be any programs in place to help seniors on fixed incomes meet ever-increasing costs. It is not surprising therefore that many seniors have gone into debt by taking out second mortgages or building up ever larger balances on credit cards.