October 24, 2015

Social Security, Inflation, and Seniors

I received the following press release from the Senior Citizens League a few weeks ago. It highlights a situation that affects many of us who receive Social Security benefits. I ask that you read the following and then respond to a few questions I have added:


(Alexandria, VA) Social Security beneficiaries have lost 22 percent of their buying power since 2000, according to the 2015 Survey of Senior Costs by The Senior Citizens League (TSCL).  The findings show a dramatic drop in inflation over the past year, due almost entirely to the drop in oil prices.  “The deflationary trend, while good news for some consumers, spells trouble ahead next year for retired and disabled beneficiaries who depend on Social Security for most of their income,” says TSCL Chairman Ed Cates.

In most years, Social Security beneficiaries receive a small increase in their Social Security checks, intended to help them keep up with rising costs.  But according to the 2015 TSCL survey of typical senior costs, since 2000 the Cost of Living Adjustment (COLA) has increased benefits just 43 percent while typical senior expenses have jumped 74 percent.  Recently the Social Security Trustees confirmed that there would be no annual COLA for 2016 — which TSCL earlier forecast in May.

Inflation has been at historic lows in recent years and seniors received a COLA of just 1.7 percent this year.  “While there’s been some temporary improvement in the buying power of Social Security benefits recently, the drop in inflation is now so large that there is no COLA expected for 2016,” says TSCL Chairman Ed Cates. 

Going without any COLA has long-term consequences resulting in lower total retirement income,” Cates says.  “This problem also affects military retirees and others who receive COLA adjusted benefits.,”

According to the TSCL survey, people with average Social Security benefits in 2000 received $816 per month, a figure that rose to $1,166.30 by 2015. However, those individuals would require a Social Security benefit of $1,419.00 per month in 2015 just to maintain the same buying power they had when they first retired, the study found.

The study examined the increase in costs of 34 key items between 2000 and January 2015.  The items were chosen because they are typical of the costs seniors must bear.  Of the 34 costs analyzed, 22 exceeded the amount of increase in the COLA over the same period.  The selected items represent eight categories, weighted by approximate expenditure.

“This study illustrates why budget proposals that would cut the growth of COLAs would put millions of older and disabled Americans at risk of insufficient income to cover more growing expenses,” says Cates. “To put it in perspective, for every $100 worth of expenses seniors could afford in 2000, they can afford just $78 today.” A majority of the 59 million senior and disabled Americans who receive Social Security depend on it for at least 50 percent of their total income, and one in three beneficiaries relies on it for 90 percent or more of his or her total income.

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The COLA situation may not affect you, or maybe it does quite directly. The effect of inflation, even the "official" low level of the last several years, takes its toll. No one is unaware of the increased medical costs for prescription drugs, insurance premiums, copays and deductibles, even for those on Medicare.  A couple should expect to spend an estimated $245,000 (in today's dollars) on health care in retirement, according to Fidelity’s 2015 Health Care Cost Estimate, as reported in Forbes Magazine.

The costs at the grocery store are just as dramatic. Ground beef has increased 130% since 2000,  a dozen eggs are up 117%, even a loaf of bread is 63% more expensive over the same time period. Electricity is up  63%, real estate taxes 127% higher.....for those on fixed incomes these increases can be very damaging.

So, my questions to you are these:

1) Realizing that so many seniors depend on Social Security for a major portion of their income should the government use a calculation that insures monthly payments at least keep pace with the inflation of the true cost of living?

2) Because the system will be in serious financial straits at some point in the not too distant future, is this something that Social Security simply can't afford, even if the result is real loss of buying power over time?


Frankly, I am not sure what my answers would be to these two questions. One part of me says if we can afford a half a trillion dollar defense budget, or to send a spaceship to Mars, then maybe our priorities toward the most vulnerable part of our society need adjusting. Many seniors cannot reasonably find ways to increase their income, so they are truly stuck. Official inflation calculations do not take into account the dramatically increased costs that are part of our daily life. 

On the other hand, it is not just those on Social Security who have to deal with wages that have barely budged over the last decade. Is it fair to make those on Social Security a little better off while wage earners are not made whole? 


What are your thoughts? What is fair and compassionate? 



23 comments:

  1. I guess my answer it three fold:
    1) Cut our military spending to the same percentage level as the rest of the world. Result: +$400 billion
    2) Put the wealth/inheritance tax back to where it has traditionally been. Everyone should make their own way in the world. Result +$400 billion.
    3) Make employee owned companies the standard and give them lucrative tax breaks. That would truly allow workers to reap the result of the work. Presently way to much of it goes to those who already have wealth way beyond their needs. Result: $trillions....

    With all the savings we could insure that the safety net is securely in place for those who need it and provide a living wage to all of us. Rise up with pitchforks against the power held by the 1%.... Power to the People :)

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    1. No mincing words for RJ.

      Our priorities are seriously out of whack. With that, you and i are in total agreement.

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  2. Raise the Social Security payroll tax. When it was established in the 80's the cap covered the majority of workers but since then the wealth has shifted upwards and that percentage of taxed income has dropped. Raise the cap and have it keep going up as the cost of living and income go up. It's only fair that the wealthy pay the same percentage of their income as the rest of us. And the cost of living adjustments are ridiculous right now. To deny increases because the cost of oil is low while food, clothing, housing, medical costs skyrocket is ludicrous. I don't believe Social Security is doomed as the Republicans would have us believe. There is plenty of room for reform and adjustments if there is a will to do so. Unfortunately, Congress is either part of the 1% in the pocket of the 1% so the will is absent.

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  3. My first sentence should read...raise the Social Security payroll tax "cap". I should have edited, sorry.

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    1. The cap should be increased. No argument from me.

      There has been an idea suggested that the very wealthy shouldn't receive Social Security. While their need is not there, in fairness they were forced to contribute to SS all of their working lives. To pay into a system and then be banned from any benefits isn't equitable.

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  4. Your article summarized the fact that many of us are in desperate straits. My living budget leaves nothing for any kind of emergency although I have worked all my life. Raising the SS payroll tax cap, as Jane O stated, would definitely be a logical step in the right direction.

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    1. Thanks, D.A. Raising the payroll tax cap would help with the financial health of the system, but not address the problem of an inflation measurement index that doesn't address real life inflation.

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  5. Wow, talk about a touchy subject! However, I'm skeptical of the Senior Citizens League figures since clearly it's a special interest group with an agenda. And I'm also skeptical of the Fidelity numbers because it also has an agenda. That being said, the medical bills are the expenses that hit us the hardest, and even though they're increasing at a slower rate than a few years ago, they're still going up 3 - 5 percent a year. Also, at least in our case, it's the same situation with our school tax (which is our largest annual expense). It's going up less than a few years ago, but still 3 - 4 percent a year.

    Another issue to consider. The poverty rate among children in America is higher than it is among seniors. Shouldn't we help them first? I don't know what to do. But I do agree with Jane O. Removing the payroll tax cap would solve a lot of issues involving SS.

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    1. Just in the interest of balance, I will add that the government has an agenda too in choosing the inflation measurement rate - keeping expenses down. Everyone who speaks up about any issue has a point of view. We are charged with sorting through the conflicting claims and determining the "truth," at least to our abilities! Even so, your point is true and well taken.

      Raising the cap is a simple, fair, step. That is probably why it hasn't happened this time around.

      The issue of child poverty in America is a shame on all of us. Figures indicate maybe 1 in every 5th child is hungry. An even higher percentage live in substandard, unsafe housing.

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  6. Where I live, grassroots organizations have had a huge impact on assisting the needy (of all ages). Churches of all denominations, and clubs of all persuasions join forces to distribute food, clothing, school supplies, and vouchers for nearly everything imaginable. I wish that our country's leadership would take necessary steps for a brighter tomorrow, but we the people are still able to make a difference in our communities. What's more, this community support is available year round. As a retired teacher, I can't tell you how effective these initiatives are in teaching youngsters to share and care at an early age. The Golden Rule is a very old teaching, but it can still make an incredible impact on lives in today's needy society.

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    1. We have been a people who cares for those among us who are suffering and disadvantaged. Unfortunately, there was a period when we began to expect the government to take care of this. That hasn't worked as well. Pam, you identify the most effective approach: grassroots, local concern.

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  7. Raising the cap would be a good start. Maybe those in higher income brackets could take 3/4 of the benefits, or some arrangement like that. I also understand that Congress & other Federal employees do not have Social Security; if this is true, they need to be put into that system, in my opinion.

    I agree with Pam, above, that grassroots organizations are doing a wonderful job in many places, but I think it's a problem in our culture that they should have to do that. There are truly some dedicated souls out there helping, but what happens when they burn out?

    The amount of wealth accumulated by the 1% truly seems obscene to me; yet if someone is willing to gamble their lives & time to build a business they do need a fair return on their money also. The tricky part is determining the fair return; fair is a tricky word.

    It's a tough call for me, children or seniors; my first feeling is for the children because they are the innocent victims in all this. What frustrates me is the feeling that if we managed our resources more effectively, many more needs could be met; maybe we wouldn't have to choose.

    pam.

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    1. With our resources, you raise the key question, Pam: why do we have to choose? We could easily afford all of it if we didn't have a military budget larger than the next 25 countries combined, or sending aid to countries that hate us.

      We can't be isolationists, but we can't continue to ignore our own citizens while throwing money at problems that we can't solve.

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  8. When comparing the military budget to other countries you are talking apples and oranges. A large percent of our military budget goes for items outside the military, but that are important to politicians. That said, our actual military budget is still significantly larger than any other countries and it has to be. We are currently the worlds leading empire. A term most of us dislike, but accurate. Social Security like the Military has grown to cover programs and benefits that are not key to their initial intent.

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    1. Good comment, Bob. When even the Pentagon says it doesn't need something but Congress funds it anyway, you know there is a self-serving purpose going on.

      It does beg the question why we are the leading empire and what that buys for us but constant wars and massive debts. The trillions spent in Iraq and Afghanistan have only increased destabilization and left our citizens so much poorer.

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    2. Looking up the defense budget, Bob A hits the nail on the head. 40% of the DOD budget is contracting. Much of that contracting could be taken care of by troops (who do not get overtime) or the elimination of vehicles we do not need. Here is the new 55 billion baby: http://www.defensenews.com/story/defense/2015/10/27/northrop-grumman-wins-usaf-bomber-contract/74661394/
      Ten percent of the DoD budget is for health care for troops- which could be put to rest with universal health care. They are used to universal health care. It is what the military provides currently.

      Personally, I would be happy to be isolationists. Going into rescue people and countries is an expensive habit.

      If we lift the lid on larger payers- will those people receive more money when they retire?(There is a cap both ways). Having never been in that "bracket" I am not sure how they would feel about "just paying more" for the good of all of us- including those of us who could live well without SS.

      IMHO the first fix should be to our tax system. Maybe if Congress had the money, they could stop stealing the SS money we all put there!

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  9. I agree with many of the previous commenters. (1) Raise the income level at which Social Security contributions stop, (2) Cut the military budget, (3) End the corporate welfare and tax breaks for giant multinational corporations. But I would add these changes also: (4) Increase food stamps (SNAP) benefits for all who receive them, (5) Change our prison system from a punishment engine to a job-training and education engine, (6) Institute a lump-sum tax on any CEO compensation over $10 M per year. There is so much wrong with our federal tax system, it's hard to confront it without falling into despair.

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  10. Bob, I love your posts, had me thinking all week!

    The wife and I turned 66 this year, but are not yet retired. I been thinking about the Social Security (SS) problems a lot lately. I just hate it when I read about how SS will be broke by 2030, and the more our legislators tell us this the more the citizens begin to accept it. SS is a contract with the people of the US and it is the legislators job to honor those contracts.

    To answer your questions: 1) Absolutely, a new fair formula for COLA is needed. 2) Social Security must honor their commitments to the people of the US, so the legislators need to find a way to pay for it in full.

    In response to some of the other comments on Military spending... Our economy is too dependent on this to just cut it. Granted a lot of it is going over seas, but I would suggest we bring our troops home and build up our own country. Use the troops and money being spent over seas to repair our roads and bridges. Improve our own infrastructure first! What a boost to our economy that would be...

    I think our legislators should be required to use the same SS as the rest of us. They should NOT have any extra privileges just because the were elected to office. That would give them more incentive to fix the SS problems ASAP.

    I agree the cap should be raised. But, there are other loop holes that the biggest American companies are using to avoid taxes. This summer it was all over the news that the they were avoiding taxes by hiding $2.1 Trillion in profits off shore, and that they were avoiding paying $200 Billion in taxes. Talk about unfair taxation!!!

    OK, I'll be quiet now and let my blood pressure come back to normal . Thanks for a very thought provoking post.

    Keith

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    1. Having Congress participate in SS is probably too common sense to happen, but it would bring the real world into their midst.

      If we shifted just some of the military budget to internal needs, so many of the problems that are dragging us down would be taken care of. But, today I am reading certain politicians want us to consider more ground troops back in the Mid East. It is as if we never learn from our past mistakes, and will keep repeating them until we go broke.

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  11. Federal employees (that includes Members of Congress) have been required to pay into Social Security for about 20 years. The only exceptions are those who were grandfathered into the previous system. Old misconceptions die hard!

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    1. You are absolutely correct, Dick. The law changed in 1984. Unfortunately, that doesn't prevent them from raiding the trust fund for Social Security, however, to pay for other stuff.

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