Social Security Raises Fall Short of Rising Prices

The upcoming 3.2% raise for Social Security recipients in January will not adequately keep up with the increasing prices of essential items such as auto insurance and rent, particularly affecting older adults.

Despite some relief from cooling inflation, prices are still high across various goods and services. In November, the consumer price index rose by 3.1% compared to the same period last year, down slightly from 3.2% in October.

Initially, this may appear to be positive news for retirees who will receive a 3.2% cost-of-living adjustment in their Social Security benefits next year. This translates to an average additional monthly benefit of $57 based on an average retirement benefit of $1,790.

However, the slower growth in prices does not offset the increased expenses for many essential items. For instance, rent has gone up by 7% year over year, while auto insurance costs have risen by 19%, as highlighted by The Senior Citizens League's analysis of Bureau of Labor Statistics data. Factors such as rising prices of new and used cars contribute to higher auto insurance costs for individuals of all age groups.

Moreover, insurance premiums tend to rise for drivers around the ages of 70 to 75, according to Breanne Armstrong, director of insurance intelligence at J.D. Power. Armstrong suggests exploring usage-based insurance as a potential option for reducing costs, particularly for retirees who drive less during retirement.

Changes in Spending Categories for Older Adults

Some spending categories are experiencing significant price increases, particularly those that older adults tend to consume more, such as medical care. Outpatient hospital services, for instance, have risen by 7% year over year.

Rising Medicare Part B Premiums

Moreover, standard Medicare Part B premiums are set to increase by nearly $10 a month in 2024, reaching $174.70 monthly. These premiums directly impact the Cost of Living Adjustment (COLA) as they are deducted from most beneficiaries' Social Security checks.

Unexpected Medical Expenses

Many retirees are taken aback by the amount they spend on medical costs, as highlighted by Mary Johnson, a Social Security and Medicare policy analyst at The Senior Citizens League. Contrary to popular belief, Medicare coverage is not free, and the program does not cover certain major services like dental care and long-term care.

According to a survey conducted by The Senior Citizens League, over a third of respondents reported spending between 16% and 29% of their household income on medical costs, which includes Medicare premiums and out-of-pocket expenses.

The Impact on Employment

Inflation is contributing to the trend of older adults remaining in the workforce. A recent report by the Pew Research Center revealed that nearly one in five Americans aged 65 and above were still working in 2023.