Social security benefits have lost 33% of their purchasing power since 2000 – The Fool Motley


Millions of older people receive social security in retirement, and for the most part these benefits make up the bulk of their income. Unfortunately, those who depend on social security are too likely to have financial problems during their golden years, and the new data provided by the Senior Citizens League, a non-partisan organization, goes even further. in this direction.

According to a new report, social security benefits have lost 33% of their purchasing power since 2000. And even though beneficiaries have seen a fairly generous adjustment to the cost of living, or COLA, in 2019, this increase has been canceled by other expenses up.

Food and medical expenses – the expenditures of seniors tending to spend a large part of their income – have increased more than other common expenses, leaving the burden on recipients. And while the monthly average of social security benefits has risen by $ 39 this year, this increase is not enough to offset the fact that the cost of living is rising faster.

Social security cards on the hundred dollar bill


The problem is compounded by the fact that many seniors do not have access to income outside social security. Thus, when benefits are insufficient, beneficiaries tend to have difficulty paying their bills. And while the elders of today can take steps to reduce their living expenses, whether by downsizing, relocating or taking other fairly drastic measures, many of them are already at a point where they are just paying for the most part, nothing more.

That said, it's not too late for workers with a short time between retirement and retirement to start saving independently for their golden years. In this way, they are less likely to fall behind financially if social security continues to struggle to keep pace.

Complete social security with savings

Many people mistakenly think that they can live only with social security, and many seniors are trying to do just that. However, these benefits are only designed to replace about 40% of an average worker's income before retirement, and most seniors need double that amount to live comfortably. Saving independently is the best way to close this gap.

Workers who begin to build a nest egg early enough in life can accumulate a nice amount of money by saving small amounts over time, as shown in the following table:

Age to start saving $ 300 a month

Final balance at age 67 (assuming an average annual return of 8%):


$ 933,000


$ 620,000


$ 408,000


$ 263,000


$ 165,000

Data source: AUTHOR.

Note that these calculations assume an average annual return of 8%, just below the historical average of the stock market. Those who have a window of savings of 10 years or more should accumulate stocks when they build their own eggs because it is enough time to overcome the market downturn and take advantage of it. ;advanced. In addition, this 8% far exceeds the general rate of inflation, which social security apparently has not managed to do. In addition, while it is not easy in itself to separate $ 300 per month, this is not impossible for average employees who want to keep their expenses under control.

Many workers will say that they do not need their own savings, but rather, they will simply reduce their luxury and live off social security in retirement. However, this plan is dangerous, as evidenced by the millions of seniors who are dangerously close to the poverty line and have no simple way to turn the tide.

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