Social Security Benefit Increases for Inflation May Leave Many Retirees Worse Off Financially

GAO was asked to examine the net effects of the 1980 and 1981 annual social security benefit increases on the amount of discretionary income of Hawaiian retirees after they had paid for their basic food, shelter, and medical care needs.

GAO found that, in all simulated cases, the amount of real discretionary purchasing power that retirees had after paying for basic necessities had declined. The amount of the decline ranged from approximately 4 percent to 80 percent of discretionary income, with the average amount slightly over 25 percent. In some cases, retirees would have been financially better off if they had not received the benefit increases. Retirees receiving Medicaid benefits under the medically needy option experienced higher discretionary purchasing power loss rates than those not receiving Medicaid, and those receiving housing assistance had lower loss rates than those who were not. Individuals generally experienced greater loss rates than couples. Medicaid program requirements caused the greatest discretionary purchasing power losses. Because the purchasing power of need-based program benefits is not protected to the same degree as that of social security benefits, lower income social security recipients who participate in public assistance programs as well stand to lose benefits from those programs as social security benefits increase. In addressing the issue of offsetting benefit losses, extensive analysis of their effects in different States will be required, primarily because of differences in the operation of the Medicaid program.