Social Security benefits are supposed to be protected against inflation because seniors receive cost-of-living adjustments (COLAs) most years. This is important as millions of Americans rely on them as a primary source of income, or even as the sole source of income in retirement.

Unfortunately, COLAs aren't doing a very good job of making sure retirement benefits retain their value. In fact, a disturbing new study from Senior Citizens League reveals Social Security benefits have lost 30% of their buying power between January 2000 and January 2020. And, sadly, this isn't likely to change any time soon, so future retirees can expect the value of these earned benefits to continue to fall, providing them with even less in their later years.

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Here's how much the buying power of Social Security benefits has eroded

Social Security retirees get cost of living adjustments when the price of consumer goods rises from one year to the next. Between January of 2000 and January of 2020, COLAs have resulted in a 53% increase in benefits.

That may sound good, but there's one big problem: The costs of goods and services typical retirees buy has gone up by 99.3%. These big cost increases were largely driven by increases to Medicare premiums and out-of-pocket healthcare spending as well as rising housing and home insurance costs.

Unfortunately, this has left retirees far behind where they should be in terms of spending power if Social Security benefits had actually kept pace with the inflation the elderly experience. In fact, as the Senior Citizens League pointed out, a retiree with the average Social Security benefit of $816 per month in 2000 would need a benefit of $1,626.20 in 2020 just to be able to buy the same amount of goods and services as they could two decades ago. Sadly, that senior would have just $1,246.20 per month in 2020, so he's $380 per month and $4,560 per year poorer.

Here's why this is happening -- and it probably won't stop any time soon

The big reason that Social Security benefits are losing buying power is that the method used to determine cost of living adjustments involves comparing price changes using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But most retirees are neither clerical workers nor urban wage earners -- and they have very different spending habits than people who fit those descriptions.

Seniors tend to spend most of their money on food, housing, and healthcare, and the rising prices on those expenses are undercounted in CPI-W. That means seniors get smaller raises than they should (in the years they get them at all). And next year, because of COVID-19, seniors may get no cost of living adjustment at all, so buying power could fall even further.

Changing this would require an act of Congress, and it's very unlikely to happen because Social Security's trust fund is already at risk of running out of money by 2035. Increasing COLAs would only accelerate that process.

What can you do about Social Security benefits losing buying power?

Unfortunately, there's very little you can personally do to stop the value of Social Security benefits from eroding. And in fact, future retirees may actually be faced with benefit cuts on top of their retirement income being eaten away by inflation. So you could very well be in an even worse position. While you can vote for politicians who promise to shore up the program and perhaps even increase benefits, there's no guarantee this will pay off for you.

Instead, you need to take control over your own retirement destiny. While you can count on getting some benefits from Social Security, you should make sure you have enough saved to live comfortably even if you get a smaller amount than expected. To do that, start investing for retirement ASAP, set ambitious savings goals, and aim to invest at least 15% of income. If you avoid counting too much on Social Security by taking these steps, the program's falling buying power won't hurt your retirement as much, and you'll still be able to enjoy your later years without a lot of financial worries.

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