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Friday, 19 October 2012

Social Security, the 2013 COLA and the Campaign

category_bug_politics.gif In Wednesday's presidential debate there was no discussion of Social Security. Nothing. Zero. Nada.

Both candidates and the moderator, who selected the questions from the audience, ignored the program that provides 90 percent of total income to more than one-third of Social Security beneficiaries, a program that is under constant threat from one of our two major political parties.

Apparently, we elders – who are the most reliable and largest voting demographic in the land - are of no interest to our presidential candidates. And because the next debate is entirely focused on foreign affairs, it is unlikely we will hear a major statement from either man about Social Security before election day.

On the morning of debate day, Tuesday 16 October, the 2013 cost-of-living (COLA) increase was announced by the Social Security Administration. It is of crucial importance to elders battered by increased food and energy costs along with relentlessly rising health care costs that far outpace inflation.

The COLA came in at 1.7 percent which amounts to a rise of about $21 per month for the average Social Security benefit of around $1261 per month. Don't spend it all in one place.

(You can find out other facts and figures about Social Security for 2013 here.)

Although Mitt Romney slithers hither and thither on what he would do with Social Security if elected, with his choice of Paul Ryan as running mate he is legitimately tethered to the Ryan economic plan which seeks to privatize Social Security - as Republicans have never stopped trying to do since President Franklin Roosevelt signed the legislation in 1935.

The most recent version of Ryan's plan would allow younger workers to invest a third of their Social Security withholding in private investment accounts - which begs the question, does Ryan not know what happened to the stock market in 2008?

Of course he does, but never mind that. The Ryan goal in privatizing Social Security is the same as it has always been with Republicans: to turn over billions of dollars in fees to already-rich Wall Street bankers.

As disastrous an idea as that is, there may be a more immediate danger to Social Security than the election of Romney/Ryan.

Whoever wins on 6 November, President Obama and Congress will be dealing with the “fiscal cliff” before the new year.

It's probably not as dire as a real cliff, but it refers to a whole bunch of tax cuts expiring at the end of December along with cuts to many federal programs all of which Congress enacted a year ago to avoid such a cliff then.

The election campaign is sucking up so much oxygen in the country that there is little talk of what Congress will or won't do about the cliff and whether it involves another possible “grand bargain” - remember that?

Although President Obama has repeated that he will never “slash” Social Security benefits, he has waffled around less drastic measures with the program including changing the method by which COLAs are calculated to the “chained CPI.”

Listen to Social Security's best, most fierce advocate in Washington, Vermont Independent Senator Bernie Sanders, on the subject of the chained CPI:

"Let's be clear: for millions of senior citizens and disabled veterans living on fixed incomes, the chained CPI is not the minor ‘tweak' that some say it is. It is a significant benefit cut that will make it harder for the elderly and veterans to make ends meet."

Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare (NCPSSM) made reference to the chained CPI when he commented on the tiny 2013 COLA increase:

”...the truth is replacing the current COLA formula with the chained CPI will mean the typical 65 year-old, who filed for benefits at 62, would lose about $130 per year in benefits. By the time that senior reaches 95, the annual benefit cut will be almost $1,400, which is a 9.2 percent cut.”

Both Senator Sanders and the NCPSSM (not to mention moi) support another method of calculating cost of living increases: the CPI-E which more accurately takes into account the different spending habits of elders and the greater percentage of income elders spend on health care than younger people do.

Whether changes to Social Security are tackled by Congress and the president in connection with the fiscal cliff at the end of this year or next year after the inauguration, I know I'd rather fight against the chained CPI than go through a privatization battle again as we did in 2005 with President George W. Bush.

Because it is always a good idea to be reminded of the actual workings and fiscal health of Social Security, take a look at this excellent video about the program from the folks at Strengthen Social Security.


At The Elder Storytelling Place today, Deb Greant: Off to Buy Vitamins


Posted by Ronni Bennett at 05:30 AM | Permalink | Email this post

Comments

I really think you've overlooked many key items related to the possible Romney/Ryan SS/Medicare proposals. The most important is that private accounts would likely apply to workers under a 50-55 age bracket. Thus, current retirees and those w/i 10+ yrs or so would likely see no change. Second, private accounts (if they operate like 401k/403b) would allow flexible investment choices. Thus, participants would not necessarily be forced into equity/Wall Street risky investments.
So, I think your analysis is very flawed and one-sided.

Then, I assume none of us elders, on or near SS, should worry about our children or grandchildren's retirements? That assumption is pretty flawed, in my opinion.

Eliza...
It makes me nuts that so many candidates (not to mention some voters, ahem) keep telling us that current retirees and near-retirees won't be affected by privatizing Social Security.

They apparently assume that we all live by a "I've got mine and screw you" belief toward our children and grandchildren and beyond.

Actually, I think that statement tells us a whole lot more about the privatizers than it does about elders.

Eliza: You better tell your children and grandchildren that government entitlements will only able to support a portion of a person's retirement and health care costs >65 yo in the future. Maybe only a small portion. Your children/grandchildren will benefit most from drastic changes in entitlements to support a return of 3-4%/yr GDP growth.
Roni: I have more faith and trust in so-called "privatizers" and those managing my [retail financial companies] retirement accounts, then I have in entitlements and the government/politicians that cover for their fundamental long-term economic.
flaws.
SS and Medicare are Ponzi schemes and doomed to fail to meet your expectations. The "cliff" is closer than you think.

I usually love to read the comments but too many more LarryFitz and I will skip them. Any one who has faith in the profiteer-oops, privateer-oops again...Privatizers is delusional.

If the proposed Romney/Ryan
ideas concerning social security
and medicare are that good, why not offer it to all now, including the present seniors.
They know full well that they would be bawled out. Further the fallacy is that nothiong will change for those presently on these plans. The traditional plans will succumb to loss of revenues and ultimately get scrapped

Not to upset people on this blog, because there is some very useful material. But let's run and compare some numbers first.
In my case I've paid $100K to the SS system, and my employer $102K as of 2011. This began from 1967 on, so it it is a challenge to convert it 2012 dollars.
But I'll give it a shot.
OK, if the employer part was simply given to the government and annuitized at 2012 currency, then I'll guess it would be worth $150K (today's dollars) and yield an age 62 monthly payout of about $7-800.
Now, if my $100K portion was invested "privately" it would be worth $3-400K and could be annuitized to yield >$1,500/mo. For comparison, my employer paid $50K into TIAA-CREF from 1990-1995, and now the value is $156K. Similarly, my 403b Fidelity accounts from 1990-2012 have received monthly pay-ins totaling about $200K, and are now worth $365K. My wife invests almost 100% in equities, and her yields (even accounting for the 2008-2009 collapse) are even better.
OK, by my estimate if I'd had the combo of government/private option for SS my age 62 payout would be at least $2,300/mo.
However, on the SS website my estimated payout (begins 2013) will be $1,647.
Quite a difference.
So, before you throw the concept of "privatizing" SS (or Medicare vouchers) "under the bus", consider making some "real world" estimates first.

BTW: I'm also happy to lower my SS benefit with respect to my other retirement income and have this amount shifted to either help lower income seniors or keep the system solvent longer (except we're already past that point). But, this is a separate issue from "privatization" that should both lower entitlement burden on government finances + potentially provide better yield to future seniors.

chattenx: Yes, (in my dreams) I think we should be given the option of an immediate "cash out" option vs. monthly SS benefits. For sure, I'd take the $202K contributed and invest it rather than risk the consequences of collapse for the SS Ponzi trust fund (hits the iceberg 2016-2020). In addition, I'd take the $50K contributed for Medicare, invest it, accept a $5K/yr voucher from Mr. Ryan, and shop my own coverage. Yes, it would cost me $10K/yr in addition to my investment/voucher, but it's again preferable to the government's Medicare system going belly-up.

All this is something you've probably heard about, called "pro choice."

For those of you waiting for Obamacare to come to the rescue, it'll either be killed/reduced by Romney/Ryan or be consumed in the general government financial collapse within the next 4-6 yrs. Stay tuned.

My last comment, I promise.

On thing to remember is that Social Security is not an investment, it is insurance, including disability insurance. It's a stable basis for retirement, never intended to be the whole retirement income. And, it's always there - it won't end like a 401K or IRA or other retirement fund can - it won't be affected by divorce settlements.

I don't have a problem with people like LarryFitz commenting; he's entitled to his opinion.

However, why do I think he sounds a lot like the "counselor" who convinced most of the people I worked with to invest their private retirement accounts, and their kids' college accounts, in the "market"? And why didn't all those people have rosy outcomes like Mr. LarryFitz and his wife? Fact is, they lost money, bigtime.

People have been burned and they are not likely to forget that the "market" is gambling.

My concern about "privatizing people under 55" is why would they continue to pay into a system that will not support them?
SS is based on today's workers paying for yesterday's workers. Why haven't the elderly figured that out.

In this month's Scientific American there's an interesting article about the traits shared by CEO's Politicians and serial killers. All thre groups share a few personality traits including determination, focus and almost complete lack of empathy. It's not surpring then that the politicians are ready to hijack Social Security and hand it over to Wall St. It would be a win-win for the bankers, brokers and our elected representatives who would be richly rewarded for their efforts.

BTW: where did all the Tea Party enthusiasts come from all of a sudden. From some of today's comments it looks like they are out in full force here today.

I'm pleased to learn of Larry's willingness to make personal sacrifices to help those on the lower end of the income scale and also strengthen the SS system.

He can best achieve his goals by declining to accept his SS benefits.

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