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Social Security Benefits: Adequacy in Meeting Retirees' Essential Expenses Examined?

Retirees rely on Social Security benefits to preserve their purchasing power, but research indicates this isn't the case.

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Social Security Benefits: Aligned with Retirees' Essential Living Expenses?
Social Security Benefits: Aligned with Retirees' Essential Living Expenses?

Social Security Benefits: Adequacy in Meeting Retirees' Essential Expenses Examined?

Retirement for many seniors is a time to enjoy leisure activities and travel, but for an increasing number, it's becoming a struggle to make ends meet. According to a recent study by Nationwide Financial, 52% of current Social Security benefit recipients have had to cut back on discretionary spending due to increases in living costs outpacing Social Security benefit increases.

The main reason for this financial strain is that the annual Social Security Cost of Living Adjustment (COLA) is not keeping pace with retirees' actual inflation. The formula used to calculate COLAs is based on year-over-year changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W tracks the spending patterns of a group of people different from retirees, leading to potential underestimation of retirees' inflation.

Older Americans generally spend more on medical care and housing expenses, which see above-average inflation, compared to urban clerical workers. As a result, seniors are seeing the value of their Social Security benefits fall, causing a serious financial strain. The Senior Citizens League has issued warnings about Social Security benefits losing around 20% of buying power since 2020.

In response, some seniors are giving up discretionary spending, which was not part of their retirement planning process. Nationwide Financial found that 31% of seniors are reducing spending on essentials like groceries and medications, while 29% are relying more on savings or retirement plans to cover costs instead of Social Security.

Reducing spending is one of the best ways for retirees to cope with benefits losing buying power, although it may not be enjoyable. Seniors who are struggling can explore additional government benefits like SNAP and Medicaid for help in making ends meet. However, raiding retirement accounts too fast can lead to serious financial struggles later in life, so seniors should aim to find ways to reduce spending over time.

One little-known trick could potentially increase retirees' Social Security benefits by up to $23,760 per year, although more information can be found through Stock Advisor. Ongoing reforms aimed at modernizing and improving pension sustainability are also being implemented to address the issue of purchasing power loss, but it does not immediately solve the problem.

In an effort to cope with the rising costs, 15% of seniors are taking on part-time work or looking for other ways to increase income. Some seniors are also downsizing their living situations, with 18% opting to move to smaller homes or apartments.

In conclusion, seniors are facing a challenging time as their Social Security benefits are not keeping up with the rising costs of living. Reducing spending, exploring additional government benefits, and finding ways to increase income are some of the strategies that seniors are using to cope with this financial strain. It is hoped that ongoing reforms will help address the issue of purchasing power loss and provide a more secure financial future for seniors.

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