Economy for older adults vulnerable to inflation
Economy for older adults vulnerable to inflation

Economy for older adults vulnerable to inflation

With consumer prices rising at the fastest pace in nearly four decades, older adults risk having their retirement income and savings eroded by inflation. Richard L. Kaplan is Guy Raymond Jones’ professor of law at the University of Illinois Urbana-Champaign and an internationally recognized expert on U.S. tax policy and pensions. Kaplan spoke with News Bureau’s business and legal editor Phil Ciciora about the damaging effects of inflation on senior citizens’ wallets.

Are pensioners adequately protected against inflation through the Social Security’s annual cost-of-living adjustment – 5.9% for 2022 – or is COLA insufficient to offset inflationary pressures?

Social Security’s adjustment of cost of living removes some of the sting of inflation, but not all of it. This adjustment is based on the government’s broadly followed consumer price index, but the CPI does not replicate the basket of goods and services that older adults in particular buy, particularly in terms of health care spending. Although most of the medical expenses related to COVID-19 have been funded by the federal government, older Americans remain on the hook for other health expenses such as doctor visits, medications, and the like – none of which show signs of moderation. Thus, the increase in social security benefits was certainly welcome news for the beneficiaries of the program, but it did not fully offset the effects of inflation as these beneficiaries generally experience it.

If inflation is transient or weakens in the coming months, will it help retirees get a little ahead?

It may have that effect, but the perishability of inflation is by no means assured. Although inflation is declining, next year’s cost of living adjustment will reflect this change and become smaller as a result. In fact, next year’s adjustment may be eliminated altogether if inflation weakens significantly this year. It has been happening lately.

Does the combination of inflation and the roller coaster stock market underscore the need to strengthen social security, especially with COVID-19 increasing the number of new retirees, thereby pushing the programme’s insolvency date up one year?

The resurgence of inflation and the renewed volatility of the stock market certainly disturb many social security recipients, but these phenomena are not exactly new or unexpected. COVID-19, on the other hand, is a major development that completely rearranges many of the program’s components and may necessitate certain structural changes.

On the one hand, many people in the early 60s lost their jobs in the early days of the pandemic or were afraid to return to their workplaces when various variants emerged. As a result, people eligible to start receiving Social Security retirement benefits chose to do so earlier than they might have planned. At the same time, younger people who paid into the social security program also lost their jobs, had their hours reduced or died in some tragic cases of the disease. So you have more people taking money out of social security while other people no longer pay into the program.

On the other hand, the US Census Bureau recently reported that life expectancy in the United States fell by 1.8 years, the largest decline in a very long time. The effect of this decline is that social security will pay for lifelong benefits for shorter periods in many cases.

How all this shakes out is difficult to say at present, but the extent of these various effects may be so significant that various measures that have long been proposed to support social security finances may finally receive some serious consideration. We just have to see.

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