According to a survey released in May 2013 by The Senior Citizens League, seniors have lost 31 percent of their buying power since 2000. To put it in perspective, for every $100 worth of expenses seniors could afford in 2000, they can afford just $69 today.
It’s important to understand that Social Security cost-of-living increases are tied to the Consumer Price Index (CPI), which is a measure of the average change over time in the prices paid by consumers for goods and services.
CPI surveys are done on a routine basis, and the increase in the CPI from year-to-year is used as one measure of inflation. This should mean that Social Security income should be keeping pace with the cost of inflation since Social Security cost-of-living is based on what is considered the standard measure for inflation in this country.
Unfortunately, seniors typically consume much more healthcare than the average American and therefore healthcare should be weighted more heavily if the CPI were to apply solely to seniors. The fact is … the cost of healthcare has been increasing significantly faster than the CPI over the past 20 years, and is one major culprit that is eating into the buying power of senior’s incomes.
Another source of pressure on seniors is prescription drugs. A new report from the AARP’s Public Policy Institute says the prices of drugs used most often by older Americans went up by nearly 26 percent from 2005 to 2009. The rate was almost twice that of inflation, which was 13 percent.
And if that isn’t bad enough, the amount of debt held by seniors seems to be growing every year. The bulk of this debt is in home equity mortgages and credit cards. Undoubtedly some of this debt is due to escalating medical costs, but it also may be due to other factors such as a poor economy causing seniors to lose employment or extremely dismal returns on savings and investments.
It takes income to make debt payments. And that in turn reduces the amount of available income for other necessary household maintenance.
Money was easily available before the credit crisis in 2008, and it was cheap. Some senior citizens used the funds to make home repairs, pay for vacations or help their children, while others put the proceeds in the stock market, figuring they could make a lot more money. Only 24 percent of homeowners over the age of 62 had mortgage debt in 1992, but that figure soared to 45 percent in 2010.
Another significant challenge facing seniors today is that almost 35 percent of those age 71 and older have mild cognitive impairment or dementia. Sadly, financial abuse of these people, who are impaired in their decision-making, is a growing problem and can take several paths.
First of all, because of confusion or uncertainty about handling their own financial affairs, seniors are often preyed upon by unscrupulous individuals. Researchers at the University of Iowa have found that changes to the aging brain may make many older people less risk averse, thereby making them more susceptible to risky schemes. Because of this deficiency in thinking and in an effort to act on something that sounds too good to be true, many seniors are too trusting with their money with strangers.
No one ever said growing older would be easy, but today, the challenges are increasingly daunting. Fortunately, we do have many resources available that can assist us in making wise and “informed” decisions. Thanks to organizations like the Kitsap Alliance of Resources for Elders (KARE), there are men and women … experts in their field of elder law, financial planning, real estate, long-term care insurance, assisted living, and even physical therapy and brain fitness, who are ready and available to provide assistance and counsel.
Don’t wait for a crisis to hit. Now is the time to address these issues and be prepared.
Carl R. Johnson
Community Relations Director
Kitsao Alliance of Resources for Elders (KARE)