AARP Releases Data Showing Impact of Recession on Social Security Recipients Facing No COLA in 2009

Source: AARP Press Center

FOR IMMEDIATE RELEASE
September 22, 2009
CONTACT:
AARP Media Relations
202-434-2560
media@aarp.org

AARP Releases Data Showing Impact of Recession on Social Security Recipients Facing No COLA in 2009
Anticipated No Increase To Hit Nation’s Most Vulnerable The Hardest

Washington, DC – On the heels of AARP Public Policy Institute’s Solutions Forum addressing the lack of a Social Security COLA for 2010, AARP released the following statistics today which highlight the impact of the economic recession on Social Security recipients. Data shows that medical prices have risen during 2009, and Medicare beneficiaries with higher than average health care costs are hardest hit by not having a COLA next year.

Higher Medicare deductibles and premiums for Part D prescription drug coverage will be announced soon, adding to the health care cost burden. Moreover, because Medicare Part B and Part D prescription drug premiums are often deducted from Social Security checks, millions of Social Security recipients could see their benefit checks reduced in 2010, while they are still suffering from reduced retirement savings and a stagnant housing and employment market.

“Seniors face rising costs, but today have fewer resources to pay for them,” John Rother, AARP’s Executive Vice President for Public Policy and Strategy, said. “We urge Congress to address this issue quickly, so that seniors will not face reductions in their Social Security checks, or at least be compensated for increasing medical costs so vital to their well being.”

As advocates for older Americans examine the potential impact of a first-time no COLA for Social Security recipients, AARP has raised specific concerns regarding the rising costs of health care and significant losses in retirement savings.

AARP has compiled the following data to further the discussion taking place among advocates and lawmakers:


Stimulus

As part of the 2009 economic stimulus package, workers received a tax credit of up to $400 ($800 for couples), for 2009 and 2010. Social Security beneficiaries (and certain other retirees and disabled persons) received a one-time payment of $250 for 2009 only.

In addition, older households are more likely than younger households to spend any additional income that they receive, and this spurs economic recovery. (Source: Did the 2008 Tax Rebates Stimulate Spending? Matthew D. Shapiro and Joel Slemrod, University of Michigan and NBER, December 27, 2008.)


Retirement Savings

While the economy is recovering, household net worth is still about 17 percent lower than it was at the end of 2007 (and nearly 20 percent lower in inflation-adjusted terms). (Source, AARP Public Policy Institute calculations from Federal Reserve Board, Flow of Funds Account, Balance Sheet of Households and Nonprofit Organizations, September 17, 2009.)

Interest rates paid on savings account deposits have now also dropped to very low levels, leaving even conservative savers in a pinch. The average annual interest rate on a 6-month CD is less than half a percent today (0.44 percent in August 2009), down from 4.85 percent at the end of 2007. (Source: Federal Reserve Statistical Release H.15, September 21, 2009.)


Employment

Many older workers now plan to work longer in order to rebuild their retirement savings in the wake of the recession. But some have already lost employment, and many will be unable to continue working. When older workers lose their jobs, it takes them longer to find a new one, and some of them instead opt to drop out of the labor force altogether, turning to Social Security and retirement savings.

Social Security claims are on the rise as the souring employment market forces older Americans out of the workforce and diminishes their personal savings. The number of applications for retirement benefits was nearly 9 percent greater than expected this fiscal year to date. (Source: Stephen C. Goss, Chief Actuary, Social Security Administration, May 28, 2009. Data are for October 2008 through May 2009.)

In August, the average duration of unemployment was over 30 weeks for jobseekers aged 55 and older, compared to about 20 weeks in December 2007 and 24 weeks for jobseekers under age 55. (Source: Sara Rix, AARP Public Policy Institute, analysis of data from the U.S. Department of Labor, Bureau of Labor Statistics. See in particular The Employment Situation: August 2009; tables in BLS’s Employment and Earnings, January 2008 and September 2009; and BLS’s Labor Force Statistics from the Current Population Survey.)

As Federal Reserve Chairman Ben Bernanke has explained, while the economy is expected to grow in the coming year, “the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.” Thus, increasing numbers of older Americans will rely on Social Security because they can’t find a job for some time to come. (Source: Chairman Ben S. Bernanke, remarks delivered at the Federal Reserve Bank of Kansas City's Annual Economic Symposium, August 21, 2009 and at the Brookings Institution, on September 15, 2009.)

Medical Costs

While overall inflation is low (or negative), medical costs continue to rise; and, older Americans spend more than others on health care.

Between August 2008 and August 2009 the cost of all goods and services other than medical care fell by 1.8 percent. In contrast, the cost of medical care rose by 3.3 percent. (Source: Bureau of Labor Statistics, Consumer Price Index Summary, September 16, 2009, Table 1.)

Rising medical costs can be a disaster for retirees or anyone with unusually large expenses. On average, Medicare beneficiaries spend about 30 percent of their incomes on out-of-pocket medical expenses. (Source: AARP Public Policy Institute.)


To watch the webcast of the September 21st AARP Public Policy Institute’s Solutions Forum on the Social Security COLA, go to www.nextgenweb.org/aarp.


AARP is a nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole. AARP does not endorse candidates for public office or make contributions to either political campaigns or candidates. We produce AARP The Magazine, the definitive voice for 50+ Americans and the world’s largest-circulation magazine with over 35.5 million readers; AARP Bulletin, the go-to news source for AARP’s 40 million members and Americans 50+; AARP Segunda Juventud, the only bilingual U.S. publication dedicated exclusively to the 50+ Hispanic community; and our website, AARP.org. AARP Foundation is an affiliated charity that provides security, protection, and empowerment to older persons in need with support from thousands of volunteers, donors, and sponsors. We have staffed offices in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

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