As consumer prices rise at the fastest rate in nearly four decades, seniors are at risk of seeing their retirement income and savings eaten away by inflation. Richard L. Kaplan is the Guy Raymond Jones Professor of Law at the University of Illinois at Urbana-Champaign and an internationally recognized expert on US tax policy and retirement issues. Kaplan spoke with Phil Ciciora, business and law editor of the Press Office, about the damaging effects of inflation on the wallets of older people.

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

Social Security’s cost-of-living adjustment mitigates some, but not all, of inflation. This adjustment is based on the consumer price index widely tracked by the government, but the CPI does not replicate the basket of goods and services that older people in particular buy, particularly with regard to the costs of health care. Although most medical expenses related to COVID-19 have been funded by the federal government, older Americans continue to incur other health care costs such as doctor visits, medications and more – including none show signs of moderation. Thus, the increase in social security benefits was certainly good news for the beneficiaries of the program, but it did not fully offset the effects of inflation such as these beneficiaries generally experience.

If inflation is transitory or weakens in the coming months, would that help retirees get out a bit early?

It could have that effect, but the transience of inflation is by no means assured. Even if inflation falls, next year’s cost of living adjustment will reflect this change and will therefore be lower. In fact, next year’s adjustment could be eliminated entirely if inflation weakens significantly this year. This happened in the recent past.

Does the combination of inflation and stock market rollercoaster underscore the need for stronger social security, especially with COVID-19 increasing the number of new retirees, thus pushing back the date of insolvency of the program?

The resurgence of inflation and renewed stock market volatility certainly worry 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 overhauls many components of the program and may make some structural changes necessary.

On the one hand, many people in their early 60s either lost their jobs at the start of the pandemic or were afraid to return to their workplaces as different variants emerged. As a result, those eligible to start taking Social Security retirement benefits chose to do so sooner than they would have expected. At the same time, young people who were contributing to the social security program also lost their jobs, had their hours reduced or, in some tragic cases, died of the disease. So you have more people withdrawing funds from Social Security while other people are no longer contributing to the program.

On the other hand, the US Census Bureau recently reported that life expectancy in the United States has fallen by 1.8 years, the biggest such drop in a very long time. The impact of this decline is that Social Security will pay lifetime benefits for shorter periods in many cases.

How it all shakes up is hard to say at this point, but the scope of these various effects may be so significant that various measures that have long been proposed to shore up Social Security finances might finally be seriously considered. We’ll just have to see.