Folks on Social Security and Fed. Retirees Are Getting a Raise

According to the Washington Post, both people on social security and federal retirees are getting a small cost of living increase for 2020. Both groups of people will get a 1.6 percent increase in the checks they receive from the government. The problem is, according to Yahoo Finance, the increase does not match real-world inflation that is faced by most seniors.

The government uses the Bureau of Labor Statistics consumer price index to determine what the COLA will be for social security recipients and federal retirees. However, that consumer price index covers typical increases in expenses for clerical workers and urban employees. Senior citizens have to deal with increases in health care costs, including medications, which can be considerable as one grows older and is subject to more chronic health issues.

The paltry cost of living increase is against the backdrop of the impending insolvency of the entire social security system. Reason magazine notes that starting in 2020, the social security system will start paying out more money to retirees than it is taking in from current employees, thus starting to draw on the system’s surplus. Current projections suggest that the surplus will be depleted by 2035. Hence, the social security system will be unable to pay the full value of its benefits.

The problem is that the post-World War II baby bomb was followed by a baby bust. People are not having as many children as they used to. Hence, the number of workers paying into the system has declined from 5.1 for every retiree in 1960 to 2.8 per retiree in 2017. Something has to be done. Unfortunately, most of the options are unpopular.

Increasing payroll taxes is one idea. However, tax increases of any kind tend to be unpopular, even if they are designed to finance a benefit that all American citizens are expected to enjoy.

Another idea that has been floated is to increase the retirement age. The notion is beguiling. People are living longer and healthier. Indeed, when social security was first established in the 1930s, the average American life expectancy was 59.9 for men and 61.6 for women. In 2010 those figures had increased to 76.2 for men and 81.1 for women. With advances in medicine proceeding apace, the life expectancy is only bound to increase.

One problem, besides the tendency of seniors to resent proposals that they should stay in the workforce longer, is that work itself is more strenuous for some than for others. People who work in an office, say, might well be able to work until they are 70 or even 75. People who are employed, say, in manufacturing, not so much.

Reason suggests means-testing social security payouts as well as Medicare.

“When and if Congress gets around to doing anything, both programs should be restructured to ensure they take care of the truly needy, rather than being benefits for anyone who has reached an arbitrary age. As Reason‘s Nick Gillespie and Veronique de Rugy wrote in a still-very-relevant 2012 feature on the future of America’s entitlements, ‘Focusing on those truly in need instead of automatically shoveling out larger and larger amounts to well-off senior citizens is the best way to avert looming fiscal catastrophe and restore some morality to an indefensible system.’”

It should be noted that the increasing cost of entitlement programs is the main driver of the yearly federal budget deficit and the enormous national debt, the servicing of which has become a major expense. Reason naturally suggests that by reining in the cost of social security and other entitlements, the deficit could be turned into a surplus, hence the debt could be paid down as well.

In the meantime, most investment advisors suggest taking responsibility for one’s retirement into one’s hands. Younger workers should, by all means, invest as much as they can in IRAs and 401Ks. With polling suggesting that most millennials do not believe that social security will even be around for their declining years, such an investment strategy is only prudent. Then one will not have to stress the cost of living increase of social security because one’s nest egg will suffice for one’s declining years.


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