The annual cost-of-living adjustment, or COLA, for Social Security benefits in 2022 — usually announced in October — could be 6% to 6.1%, the highest since 1983, based on Tuesday’s Consumer Price Index announcement, according to Social Security and Medicare policy analyst Mary Johnson of The Senior Citizens League, who estimated the 2022 COLA would be 6.2% a month ago.
The latest estimate, which is based on inflation of 0.3% in August, is especially significant as next year’s COLA will be calculated on the average of third-quarter, or July, August and September, CPI data.
The consumer price index for all urban consumers in August rose 5.3% over the past 12 months, and 0.3% from the previous month, the Labor Department reported Tuesday. (The CPI includes food and energy.)
Through the mechanism of the Trust Fund, Congress can put off having to act on the fundamental demographic problem that they can’t do much about. They hope they can run the Magic Money Machine to cover all the goodies they want, and in 2034, the Boomers will mostly be over age 80. Maybe another pandemic will deal with them….
(and nobody cares about us Gen Xers. In 2034, I won’t even be eligible for Social Security old age benefits.)
Nobody expects the Social Security benefits to be cut in 2034, or whatever other magic date when the Trust Fund runs out. The only thing the current Trust Fund mechanism requires is cuts… only if Congress doesn’t actually pass legislation to “fix” the issue.
They have been doing ad hoc “fixes” to Medicare and other parts for years so as to avoid massive cuts.
This year, Social Security’s deficit is unusually high due to lower revenues and higher benefits: 1.75%. In 2040, the deficit climbs to 3.70% rather than 3.54%. In 2080, the deficit stands at 4.87% rather than 4.59%.
Put another way, if there were no Trust Fund accounting mechanism now, the OASI program would have been able to pay 93% of benefits. This would drop to 76% in 2035 – 2040 – 2045, then drop further to being able to pay 70% of benefits.
What’s more, this year, the actuaries changed several assumptions. They assume that by the year 2036, fertility rates will increase to 2.00 children per woman, an increase from the 2020 report’s assumption of 1.95. They also assume a long-term unemployment rate of 4.5% rather than 5%. At the same time, they calculate alternate projections with more pessimistic assumptions, including a continuingly low fertility rate (1.69), a higher rate of mortality improvement (that is, longer-lived recipients), a higher rate of unemployment (5.5%), and others. In these alternate calculations, the 2040 deficit becomes 6.47% rather than 3.7% (benefits 64% payable), and the 2080 deficit becomes 12.39% rather than 4.87% (benefits 50% payable).
Also consider that, at the moment, there are 2.7 workers for each Social Security recipient (2.8 in 2020). This is forecast to drop to 2.2 in 2040 and ultimately down to 2.1. But if the population trends are those of the pessimistic scenario, then that 2.1 would drop to 1.5 by the year 2080.
Trustees for the Social Security trust fund in an annual report released Tuesday said the program is expected to pay benefits that exceed its income in 2021, the same as it anticipated last year at the outset of the pandemic.
The trustees now project elevated mortality rates related to the pandemic through 2023, and expect lower immigration and child-bearing this year and next, compared with their 2020 estimates. They also expect the pandemic has lowered worker productivity and thus economic output permanently.
Given Social Security’s dire financial condition, there is growing interest in attempting to harness the power of private capital markets to bail out the faltering system. However, despite its surface attractiveness, allowing the government to invest funds from the Social Security trust fund in private capital markets would be a terrible mistake that would have severe consequences for the U.S. economy.
Allowing the government to invest the trust fund in private capital markets would amount to the “socialization” of a large portion of the U.S. economy. The federal government would become the nation’s largest shareholder, with a controlling interest in nearly every American company. Government ownership brings with it serious problems of government control and is a threat to the efficiency and competitiveness of the U.S. economy.
Moreover, experience in other countries has shown that government investments seldom achieve the rates of return seen in private investment. Attempts by the government to manipulate the markets could further undermine returns and threaten general market stability.
If 40 million Americans were suffering from the same severe problem, you might think it would be the subject of considerable media attention, a host of government programs, infusions of business capital and a hot topic of national conversation.
According to The Senior Citizens League, the sleight of hand behind it is a formula for calculating the Cost of Living Adjustment (COLA) that has robbed seniors of 33% of their buying power since 2010.
Since then, annual COLA increases have averaged a meager 1.375%. That means the average recipient has received a COLA increase of less than $20 a month. For many, the con job is even more vexing because much of that gain is taken back with increases in Medicare premiums.
These annual COLA adjustments are based by the U.S. Bureau of Labor Statistics (BLS) on a formula that uses the Consumer Price Index for All Urban Wage Earners and Clerical Workers — a lengthy descriptor that’s usually abbreviated as CPI-W. Therein lies the problem — this index does not accurately reflect the rising costs that most affect seniors — such as medical care and drugs, food/staples and rent. Even the most modest estimates suggest these costs are increasing at a rate of somewhere between 5% and 10% annually.
Members of Congress have increasingly demanded large tax hikes on upper-income families to finance large spending increases on top of soaring baseline deficits. But even the most aggressive tax hikes on the rich would make only a small dent in the long-term budget deficits, and they would significantly harm the economy. Before considering any new taxes, lawmakers should first reduce federal spending benefits for high-income families. This bipartisan strategy would achieve both the redistributive goals of the left and the spending restraint goals of the right.
Such upper-income spending cuts have several advantages over new taxes: 1) they will not harm economic growth, 2) they increase future policy flexibility, 3) they are better targeted, and 4) they promote political compromise.
Several programs target spending to wealthy Americans. This report focuses on three of the largest: Social Security, Medicare, and farm subsidies, where basic reforms could save upward of $1 trillion in the first decade, and substantially more in future decades.
Thirteen states tax Social Security benefits, a matter of significant interest to retirees. Each of these states has its own approach to determining what share of benefits is subject to tax, though these provisions can be grouped together into a few broad categories. Today’s map illustrates these approaches.
Chile’s privately run pension funds are in a battle for survival, reeling under the impact of billions of dollars of withdrawals as politicians and social movements attack a system once viewed as a model for the world.
Chileans have taken out more than $30 billion from their retirement savings in the past year and congress has authorized a third wave of withdrawals that could drive the figure to more than $50 billion. That would leave the pension funds with about $180 billion of equities and fixed-income assets. Many lawmakers are now calling for the whole system to be dismantled.
Created during the dictatorship of August Pinochet on the advice of free-market economists known as the Chicago Boys, the private pensions Chileans are required to fund are a bedrock of the country’s system. The savings they have generated over the past four decades have given local credit markets and the peso a stability that is the envy of serial defaulters such as Argentina or Ecuador, and prompted countries including Peru and Colombia to adopt similar structures. Yet, many complain that the funds have failed to provide decent pensions.
Distrust in the system, and a need for cash, meant Chileans rushed to pull money out of their savings accounts as the pandemic forced the government to shutter much of the economy.
The differences in reliance on income sources between those who are already retired and those who are not yet retired are likely attributable, at least in part, to apprehension about the Social Security system, as well as the rise of 401(k)s accompanied by a decline in work-sponsored pension plans.
57% of retired U.S. adults say they rely on Social Security as a major income source, and 38% of nonretirees expect it to be a major source for them.
Likewise, 36% of retirees and 19% of nonretirees say a work-sponsored pension plan is or will be a major income source.
Nonretirees are most likely to say a 401(k) or other retirement savings account will fund their retirement (49%). Meanwhile, 35% of retirees mention 401(k)s as a major funding source of their retirement.
Delaying Social Security may mean scoring a higher monthly benefit — but it doesn’t necessarily mean snagging a higher lifetime benefit. In fact, if you pass away at a somewhat young age, you’ll actually lose out on lifetime income by delaying your filing until 70.
Let’s imagine you’re entitled to a monthly benefit of $1,500 at an FRA of 67. If you were to claim that benefit at age 62, it would shrink to $1,050, whereas delaying it until 70 would let it grow to $1,860.
But if you were to pass away at the age of 78, which is considered relatively young given today’s life expectancies, here’s what you’d be looking at in terms of lifetime income: