"To be happy in this world you have to ignore some things." -- Alan Drew, "Shadow Man"

Thursday, October 23, 2014

The 1.7 Percent Solution

      The government announced yesterday that our Social Security benefit for next year will increase by 1.7 percent, reflecting the 1.7 rise in the Consumer Price Index through September of this year. The average benefit will go up by a little more than $20 a month, which will barely cover average increases in Medicare and allied medical insurance. 

     Inflation of 1.7%? Who are they trying to kid? Have you shopped in a grocery store lately? Everything has gone up and the packages are getting smaller. Meanwhile, have you checked on the increases in college tuition? Or seen how healthcare prices have gone up? What about property taxes? Don't believe these fake government inflation reports. Inflation for seniors is closer to 10 percent if you look at the real world.

     Does the general rate of inflation truly reflect the real lives of senior citizens? One reason the CPI is so low is because of the decrease in gasoline prices. By definition, retired people no longer commute, so we don't use as much gasoline, and don't benefit from the lower cost of fuel. But we do travel. We do heat our homes. Then, how do you factor in the cost of food and health care? The National Committee to Preserve Social Security and Medicare touts a different way to determine increases in Social Security. It recommends using a measure called CPI-E, rather than the CPI, arguing that the CPI-E more closely resembles the inflation measure for people over 62. On average, the CPI-E runs 0.2 percent higher than the general CPI. That would mean, instead of getting $20 more, you'd get about $22. A small amount. But it would add up over the years.

     But where would we get the money? And are seniors getting greedy?

     A lot of retirees don't understand that they didn't contribute nearly as much into Social Security as they are taking out, assuming they live a normal life span. Social Security was never meant to be your sole source of support, but it was supposed to help those who didn't have a pension or could never save enough to get by. But today's recipients are receiving more than they put in, while younger generations are getting screwed. Remember, people who are currently working and paying into Social Security are not getting much in the way of raises either. To a lot of people a 1.7 percent increase doesn't seem bad. Many workers have not had any raise at all for two or three years.

     It's true that Social Security was designed as a supplemental program -- not to replace all your income, but to put a floor on your income. And it has worked. According to the U. S. Census Bureau, the poverty rate for people over age 65 clocks in at 9.5 percent, compared to 14.5 percent among the population as a whole, never mind the poverty rate for single mothers or inner city minorities. The poverty rate for children is 19.9 percent. Do we really want to take money away from poor children in order to send more to middle-class seniors? Do we want to increase the payroll tax on our kids, who don't even believe they'll get the same benefits that we do out of Social Security? 

     A statement like, "I can't get by on Social Security" is ridiculous because the program was never meant to be the primary source of income during your retirement years. It's a safety net, no more than that. That's why you save for retirement starting early in our career using 401Ks and IRAs. Look, the choices are clear:  Save systematically, lead a frugal life, always spend less than you make, and this will allow you to maintain your lifestyle in your sunset years. If you're depending on Social Security alone, then plan to downsize your lifestyle drastically. The choice is yours.

     But then the government hits us when we're down. Because inflation is so low, and the government is still trying to pump up the economy five years after the recession ended, interest rates are close to zero. Those of us who scrimped and saved and built up a reasonable nest egg to supplement Social Security (like they told us to), get nothing from our investments -- not if we try to keep them safe by putting them in the bank (at less than 1 percent interest) or keep them in "safe" government or corporate bonds (at 2 percent interest). Yes, we can invest in the stock market. But that puts our nest eggs at risk. If the market tanks like it did in 2008 or 2001, then we'll be the ones who have to downsize our lifestyles drastically. 

     Everyone knows that it's not low inflation (which is anything but low) but negative real interest rates that steal from savers to support the stock portfolios of the 1 percent. If not for the government bailouts and the artificially low rates, would the price of gas, food, medicine, tuition, and stocks go up? No, everything would be much more affordable. Who would benefit? Everyone who is a consumer and not an investor -- including most seniors. Who would lose? The 1 percent. But so what? They lose a little, but would still be left with their millions.

     So where do we stand? Well, we have Social Security (even though it could be more); we have our IRAs (which are doing pretty well, at least for now); and most of us (80 percent) own a house that's worth less than it was a few years ago, but is still a pretty decent asset ... and also keeps us warm and dry all night long.

     Here's the way I see it. Lots of anxieties. Lots to complain about. But overall, we've got it pretty good, don't you think?


Anonymous said...

In the same light, you can compare social security to minimum wages then. It's just there as a supplement. Not the whole enchilada. Minimum wage was supposed to be for the high school kids, college part timers, retirees to help make ends meet. NOT survive 100% on. Careers are for that.
Unfortunately, social security for many has not been 'just a supplement' to their savings accounts. Many 50 year olds lost their jobs (I think you did too?) or were severely downsized. Many had to tap into their retirement accounts to stay afloat. Eventually they depleted their savings and social security became their 'career money' so to speak (at age 62).
Yes, I'm thankful for social security as it helps ward off starvation. But as they say: you can't retire on it. You need other sources of income, such as a part time job, which you have with your writing. Plus B works, am I correct?
I have no idea what the retirement solutions are anymore. I just know we need a lot of crutches to get by.The $20 increase we are getting can't even buy $10. That's the sad part about everything. Money has no more value. The price for almost anything is mind staggering (food, tolls, insurance, sales tax, appliances, vehicles, rent or housing, medical care etc. etc. etc.)That Tom, is called 'inflation' and no amount of money nor investments can cure it. Except to keep working (part time) for as long as possible.

Anonymous said...

Good post Tom. We must remember that SS is a supplement, not a pension. Sometimes, however, it looks like a pension to some people. I'm just happy my medical bills are covered between my own insurance and Medicare. Thank goodness I have income from other sources, however.

DJan said...

I really need my SS to supplement my annuities, but they work together to give me a reasonable standard of living in retirement. I think it's awful that people today are looking at such a different world twenty or thirty years from now. I hope something will change this trajectory for the millennials. I really do.

Pam said...

Tom, you've got us thinking with this post. Cindi, over at Thrifty@60 raised similar concerns. There's simply no way to plan for the future, but all of us can review the past. I'd encourage your readers to look back at what they spent for the basics of life, 20-30 years ago. Many of us own our homes, but property taxes, auto/home insurance, utilities, transportation, medical,and food expenses will continue. If you look back to what you spent on those items 20-30 yrs ago and do the math, you might shudder at the facts. Most of us are spending more than 2-3 times what we spent several years ago. If we want to estimate what we might need for the future, just do the math. It might cost 2-3 times more than what we're spending today. I know this is just speculation, but it's worth considering so we can make informed decisions about how we will live.

Tabor said...

I do NOT like the way the cost of food has shot up. It is terrible for those on fixed incomes. I am in a good place in my life...due to luck, wisdom, and sacrifice but everyday I think about others who through no fault of their own juggle tight budgets.

Janette said...

Life is much better for me in retirement then it ever was for my Grandmother. God rest her soul. "We" complain a lot - but things are so much better for us then they are for most of the world!

Food has shot up- especially beef. There is no way we can control a drought.
I do chuckle that gas deflated just before the CPI was calculated for the year. Do you think price of packaged food will go down now that gas is cheaper? No? Neither do I. Instead I am buying shares of Procter and Gamble :)

If my husband should pass before me- my income will drop drastically, but I can still pay my property taxes, insurance and eat :)

Mac n' Janet said...

Some of us will get less than we paid in. I was a teacher and so receive a pension for that and that reduces the amount of social security I can receive, although I was a teacher for only 14 years, I'd paid into social security for more than 25 years. So someone else will get my money.

Anonymous said...

My grandmother who lived to about 90 survived on little money in California, my aunt her daughter took care of most monetary things for her all her life that is why she never had kids, my mother her only sibling died very young, she could and would not take the many kids my mother left..I joined my Grandmother for a few years to work 3 jobs and go to college, sadly and heartbreakingly she died just before I graduated but she lives in my heart, that sweet lady was only about 4 feet 9 inches she could cook anything out of nothing, she waited for me to get 18 to join her in Californai having to live in God-Forsaken Oregon in foster care which was in my opinion a living hell on earth by the time I was 21 I was all alone but at least I had my Grandmother who stood by me and instilled to keep every damn penny in a savings bank, I am now 66 retired and living with my hubs of over 40 years, we have tried to save and save it is not easy, if we had to rely upon our social security we would have screwed too and tattoed, we own a modest tiny home, only one child college educated and I saved when I was pregnant for her and she got a big surprise of money to attend college but we did not tell her at all, she worked and worked at the university where she attended..She got the big payoff on her 30th birthday and still has it including all the interest etc. I always said and her daddy too, girl friends will come and go boyfriends will come and go but this money was for your education and you got it working and getting grants, etc. it is yours, she is a trooper..We don't have two cars, cell phones, cable and apple this and that no we do not, I walk most places and bike places, take a bus for a .25 cost and we are happy, if one cannot be happy with enough than enough will never be enough..My hubs the oldest of a huge tribe of kids with a mother who did not cook and a dad who was totally missing in action totally..He grew up fast, always working for food money and rent money yet his Mom still had many kids, she relied upon him to do what a Husband was suppose to do..We married at 26 both of us moved far away and started our own family..we have tried to save and live simply, I spoil my hubs a lot, he deserves it, his job in my opinion was terrible he outworked others and never got the big raises, he treated people kindly and the company shit all over him, one day they stole his brand new Columbia jacket I saved up for 2 years to buy, that was it for him, he decided to put in his notice, no one believed him but he did and has been the happiest in all our marriage, our only says don't worry Mom and Dad I will take good care of you both! She is single and happy, good job with benefits and saves like she is gonna be 95 the next day, she has a kitteh cat and that is it, dresses like a hippie but is shrewd and good with investments herself, she travels on her job and we see her often..she is the pride and joy of our lives!!!!!!!!!!! She doesn't care about a lot of material stuff but has great health insurance and saved so much she actually could retire young, she wants to come to the pacific northwest buy two houses one right next to the other and adopt a couple of kids who have no one and have me and her daddy ready next door when she travels for her job, we would do anything for her, we just pray our health holds up, it is all in how one defines a great life we seem to be of the thinking that you have only three things to hope for faith, food and familia that is it..nothing comes close, happy holidays coming up and ciao!

Olga said...

When I started my career, I had not the slightest notion of retirement. Fortunately there were enough preachy elders around to impress upon me the notion of the "3 legged stool." That's social security, pension, and personal savings. So now I can sit on my stool in reasonable comfort.
However, with today's economy I spin worries about my children's' retirement years through my head all the time.

Kathy @ SMART Living 365.com said...

Hi Tom! I am a true-blue optimist so I completely agree that most of us are better off than many of our ancestors were at our age. My husband and I are not yet retired...more like semi-retired because we happen to like our work and will continue doing it as long as we can. We are self employed and never once expected the government to take care of us. We are also childfree so we aren't expecting our children to take care of us either. Instead we've done our best to live fiscally conservatively and to save and plan for the future. And as for all of the SS that we've paid in--none of which was supplemented by an employer--we consider that just an addition to what we will receive when the time comes. While there is a lot in the government and world that I would change if I could....I still believe that I have it pretty good. ~Kathy

Gabbygeezer said...

All things considered, elders have it much better today than in years past. I know we do, and most folks we know also do. However, we are right to worry about future generations. Our warring legislators need to get together and start steering the ship in more positive economic directions.

stephen Hayes said...

Yes, we have it pretty good. And complaining doesn't do much good anyway.