Bad News for Social Security Recipients: Smaller Increases Coming Soon

When asked, during his Senate confirmation, why he’d consider going after Social Security to help reduce the National Debt, Bernanke quoted bank robber Willie Sutton. He said, “That’s where the money is.”

About 50 years (or longer) ago anyone with a few working brain cells could see that the Social in-Security System was a Ponzi scheme foisted upon some of the U.S. citizenry. When I saw that Congress exempted itself and railroad unions, I immediately knew I’d never collect money equal to what was stolen from my wages each week. I’ve kept every income tax form I ever filed and have computed FICA contributions I’ve made plus those my employers made. I could’ve retired long ago on only my contributions had I been able to manage my own funds and gotten a minuscule 2% yield. Now, however, I expect to see Wiemar Republic-like hyperinflation before I die. All of my retirement planning will have been for naught because politicians can’t stop spending tax receipts. Socialism in the USA has destroyed self reliance. Responsibility for one’s self should never have gone out of style. - EruditeMan, Social Security Cuts Coming Soon?, TusconCitizen.com, February 21, 2011

Every payday the U.S. government mandates that employees and employers pay FICA taxes for Social Security and Medicare on the first $106,800 of annual wages. The employee and employer 'contributions' where 7.65% each or 15.3% total up until January 1, 2011, when the feds lowered the employee portion by 2%. This 15.3%, temporarily lowered to 13.3% for 2011, is money that employees and employers cannot contribute toward private retirement funds. And now the government tells us the Social Security is going bankrupt and we'll have to work until 70 before when can collect our benefits, while government employees can retire after 30 years, regardless of age, with generous pensions paid for by the taxpayers.

Coming Soon: Smaller Raises for Seniors?

July 15, 2011

SmartMoney.com - As part of the current deficit-reduction talks, White House officials and Congressional leaders on both sides of the aisle are advocating changes to the way inflation is calculated. The little-noticed proposal advocates measuring inflation with the "chained consumer price index," a metric that would likely make inflation look slower than the current measurement does. That would result in smaller Social Security increases for seniors, experts say.

"Seniors cannot afford this," says Mary Johnson, a senior policy analyst at The Senior Citizens League, a non-profit seniors rights advocate. "This would negatively impact not just seniors, but also many families that end up helping out these seniors financially."

For the roughly 60% of seniors who rely on Social Security for at least half of their retirement income, this is a big deal. Under the new calculation, the rate of inflation would grow at an average annual rate of about 0.3% less, on average, than under the current calculations, according to the Congressional Budget Office.

If Social Security uses the new measurement to determine cost-of-living adjustments, the average retiree would receive about $18,000 less in benefits over 25 years, according to The Senior Citizens League. Or, under the new calculations, after 10 years, a 73-year-old would get a check that's about 3% smaller than he would get under the old calculations, according to the Congressional Budget Office.

Of course, lower benefits are part of the point. Using the slower-rising index is being billed by many including President Barack Obama's fiscal responsibility commission and the Bipartisan Policy Center -- as a way to generate much-needed savings to help deal with the country's mounting debt crisis. In fact, the savings could amount to an estimated $112 billion over 10 years, according to the Congressional Budget Office.

"This is a start in helping us fix Social Security," says David John, a senior fellow at the Heritage Foundation.

But critics say the new proposal only makes a bad system worse. The current measurement of inflation is supposed to account for the spending habits of adults of all ages, including only a small proportion of retirees. That doesn't reflect the true inflation seniors face, says Moshe A. Milevsky, a finance professor at York University in Toronto. For example, many older people spend a large share of their budgets on items like health care, whose prices have risen about twice as fast as overall prices, according to a 2010 paper published by the Congressional Research Service.

To be sure, almost everyone agrees that the current Social Security system is unsustainable, and the current debate over the deficit has turned up the pressure. Social Security has become a target partially because of the significant cost of the program, say experts. (In 2011, the government will pay out an estimated $606 billion in Social Security, survivor's benefits and related expenditures; this number is projected to rise to more than $1 trillion in 2020, according to a report from the Social Security Administration.)

Whether the new measurement will be adopted remains unclear. Some experts think at least some Social Security cuts will go through, at least in part because Obama has warned that unless an agreement on the current debate to extend the United States' borrowing limits is reached, Social Security benefits cannot be guaranteed starting on Aug. 3.

A spokesman for House Minority Leader Nancy Pelosi (D., Calif.) simply said "a deal has not yet been reached," and a representative for Senator Mitch McConnell (R., Ky.), who has been vocal in his criticism of the president's budget plan and announced his own plan on Tuesday, could not be reached.

For some retirees, the proposed switch could mean more belt-tightening. For pre-retirees, it could mean saving more earlier to make up for lower benefits. On top of that, it would become more important to protect a retirement portfolio from inflation hikes, experts say. That includes considering investments that rise or keep pace with inflation, such as dividend-paying stocks, Treasury Inflation-Protected Securities, or floating-rate loan funds. What to avoid? Fixed-rate, low-yielding certificates of deposit, says Michael Wall, the founder of Wall Financial Group in Altoona, Penn.:

"They're a good way to lose buying power."

Related:

The Government Has Looted the Social Security Trust Fund
The Final Red Herring: The Threatened Bankruptcy of Social Security
I Want My Social Security Money Back