Let’s Examine the Real Costs of Retirement
There is no set retirement age anymore, but, according to GoBankingRates, by age 75 most people have settled into a retirement routine. That’s why they chose that age to examine how much money seniors spend monthly.
Citing data from the Bureau of Labor Statistics (BLS), the article found that the average income of someone 75 and older in 2022 was $49,392 before taxes and $47,928 after taxes. However, the average expenses for those 75 and over were $53,481, or $4,456.75 per month. That’s a huge problem when you consider that, according to the Social Security Administration (SSA), the average monthly retirement benefit for Social Security recipients was $1,781.63 as of February, which comes to only $21,379.56 per year.
Biggest Expenses
The GoBankingRate article states that the biggest expenses facing seniors are housing (representing 36.1 percent of their total annual expenses) and healthcare (14.4% of their overall expenses). Combined, they eat up half of retirees’ annual expenses, with food, transportation and utilities also taking a sizeable chunk.
All of these costs have been increasing in past years due to inflation. That’s particularly troublesome for the millions of older Americans who rely on Social Security for their retirement income. It’s time Social Security adopts a new formula for calculating the cost-of-living adjustment (COLA) that more accurately measures price increases affecting older Americans.
Calls for a New COLA Calculator
Currently, COLA is calculated using the average inflation rate from the third quarter of the year (July through September), as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures the monthly changes in the prices of goods and services.
The problem is that retirees spend most of their income on housing and medical costs. These expenses typically increase faster than overall inflation. So, despite the recent COLA increases, Social Security benefits have not kept up with inflation as it pertains to retirees.
Retiree advocates — like The Seniors Trust — are calling for Social Security to adopt an alternative index known as the Consumer Price Index for the Elderly (CPI-E). It specifically measures inflation on the goods and services most used by adults 62 and older. Using this index to calculate the Social Security COLA would help retirees keep up with inflation better by providing a bigger benefit on average than the CPI-W. If the CPI-E had been used to calculate COLAs over the past 10 years, the average Social Security retirement beneficiary would have received an additional $3,787 in benefits.
The change will be made when Congress enacts the Social Security Expansion Act. Along with setting a fairer COLA, this landmark piece of legislation will also increase benefits by $200 per month and secure Social Security solvency for another 75 years.
