For a majority of our nation's retirees, Social Security income is imperative to meeting their monthly expenses. More than 3 in 5 current retirees relies on their Social Security benefits to account for at least half of their monthly income, and surveys conducted by Gallup of pre-retirees suggest that nearly 9 out of 10 will need Social Security income in some form to make ends meet in retirement.

But as has been well-documented, this vital program is facing nothing short of an epic issue. The Social Security Board of Trustees is projecting that the Trust's more than $2.8 trillion in asset reserves could be gone by 2034. If this excess cash disappears, benefit cuts of up to 21% could be instituted across the board in order for the program to stay solvent through 2090.

This seemingly imminent cash shortfall might appear to be seniors' biggest issue -- but it's not.

An elderly man counting his Social Security income.

Image source: Getty Images.

Social Security's COLA is falling flat

According to a recently released study from The Senior Citizens League (TSCL), cost-of-living adjustments (COLA) not keeping up with the actual inflation seniors are facing looks to be a far greater problem. Since 2000, the purchasing power of Social Security benefits has diminished by 30%. In plain English, what $100 in Social Security benefits could buy back in 2000 would only buy $70 worth of goods today. 

TSCL's report found that two-thirds of all seniors interviewed had monthly expenses this year that were $79 (or more) higher than last year. Meanwhile, beneficiaries this year received just a 0.3% COLA, the lowest increase on record. For the average retired worker, we're talking about a $4 monthly increase! Overall, 26 of the 39 costs examined by TSCL grew at a faster pace than COLA between 2000 and the present.

The 10 fastest-growing costs seniors face

What costs exactly are seniors struggling to cope with? Let's take a look at the 10 fastest-growing expenses for seniors since 2000 listed by TSCL's report.

A married elderly couple horrified by their prescription drug bill.

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  1. Medicare Part B (+195%): Medicare Part B monthly premiums have jumped from $45.50 in 2000 to $134 a month today.
  2. Prescription drug costs (+184%): Annual out-of-pocket expenses for prescription drugs have skyrocketed from $1,102 in 2000 to $3,132 currently.
  3. Homeowner's insurance (+154%): The national average annual cost to insure a home has risen from $508 in 2000 to $1,292 today.
  4. Real estate taxes (+147%): The average annual real estate taxes paid on an owned home have risen from $690 in 2000 to $1,701.50 today.
  5. Propane gas per gallon (+137%): Propane costs on a per-gallon basis have risen from $1.01 in 2000 to $2.39 today.
  6. Heating oil per gallon (+130%): Since 2000, the price of heating oil per gallon has increased from $1.15 to $2.63.
  7. Medigap supplemental insurance (+122%): The average monthly premium for a Medigap plan has jumped from $119 in 2000 to $264.45 as of today.
  8. Pet/Veterinary services (+113%): Between 2000 and today, annual pet care and veterinary-related service costs clawed higher to $232.32 annually from $109.30.
  9. Aggregate out-of-pocket medical expenses (+97%): For those aged 65 and up, out-of-pocket medical costs have jumped from $6,140 annually to $12,125.
  10. Oranges, per pound (+95%): If you need your Vitamin C, then you've observed orange prices increase from $0.61 per pound in 2000 to $1.19 per pound today.

You'll note that a number of these increases were specific to medical care or housing-related expenses. Medicare care and housing are two costs that are considerably underrepresented in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is what determines the annual COLA for Social Security.

Could this be a solution?

However, a solution does present itself. Instead of utilizing the CPI-W to calculate Social Security's COLA, one idea presented by Democrats in Congress is to utilize the Consumer Price Index for the Elderly, or CPI-E.

Social Security cards and cash atop a benefits scale.

Image source: Getty Images.

The CPI-E only factors in the annual expenditures of households with persons ages 62 and up. Compared to the CPI-W, the CPI-E places significantly more emphasis on medical care expenses and housing costs. At the same time, less attention is paid for entertainment, education, transportation, and apparel expenditures. According to a previous TSCL study, if the CPI-E had been used in place of the CPI-W over the 25 years between 1990 and 2015, the average senior would have netted almost $30,000 more in lifetime benefits. 

Sounds great, right? Not so fast.

One of the biggest problems with the CPI-E is that it doesn't factor in Medicare Part A expenses. Medicare Part A covers in-patient hospitals stays, surgeries, and long-term skilled nursing care, and it's often a big component of seniors' medical-care costs. Without this being factored into the CPI-E, there's a good chance it would still drastically underestimate the medical care inflation that seniors are facing each year.

Another pretty important issue is that while the CPI-E would be expected to give seniors a bigger annual raise more years than not compared to the CPI-W, it would also drain Social Security's asset reserves even faster. Remember, we're an estimated 17 years away from completely exhausting the Trust's excess cash, and switching to the CPI-E could exacerbate its cash outflow.

There's little arguing against the data: seniors need a bigger annual raise to keep up with rising medical and housing inflation. Unfortunately, gaining support for any changes to Social Security's COLA measures could be incredibly difficult, if not impossible.