"Wall Street Melt-down": Week beginning September 15th, 2008.
The Boston Globe: CAMPAIGN NOTEBOOK
"Candidates offer Social Security plans"
June 14, 2008
Barack Obama, highlighting differences with John McCain on Social Security, declared yesterday that he would shore up the program by imposing payroll taxes on wages above $250,000 a year.
Now, the first $102,000 in salary is taxed at 6.2 percent. In specifically setting for the first time where he wants to apply further payroll taxes, Obama's proposal would create a so-called donut hole, because income between $102,000 and $250,000 wouldn't be taxed.
"Right now, the Social Security payroll tax is capped," Obama said in Columbus, Ohio, on day five of his economic tour of battleground states. "That means most middle-class families pay this tax on every dime they make, while millionaires and billionaires are only paying it on a very small percentage of their income. That's why I think the best way forward is to adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected. That way we can extend the promise of Social Security without shifting the burden onto seniors."
Pledging to protect Social Security "today, tomorrow, and forever," Obama said 97 percent of Americans would not be affected by his plan.
He also hit McCain for being open to private savings accounts to supplement the retirement benefits, saying that amounts to privatizing Social Security.
McCain denied again yesterday that he supports privatization, though he has sounded open to the possibility in the past.
"I will not privatize Social Security, and it's not true when I'm accused of that," he said at a town hall meeting in New Jersey. "But I would like for younger workers, younger workers only, to have an opportunity to take a few of their tax dollars, a few of theirs, and maybe put it into an account with their name on it."
The McCain campaign also questioned the impact of Obama's tax proposals on seniors.
While Obama proposes to eliminate income taxes on seniors with less than $50,000 a year in income, McCain's campaign cited an analysis that Obama's plans would increase the tax bills for 10 million senior households, in part because of his proposal to raise capital gains taxes.
"Barack Obama likes to think that his tax increases will only hit a few Americans, but in truth his economic plan will be a disaster for everyone, especially seniors," Tucker Bounds, a McCain spokesman, said in a statement.
"Analysts see red in candidates' economic blueprints: Say proposals are ambitious but implausible"
By Brian C. Mooney, (Boston) Globe Staff, July 10, 2008
As the campaigns of John McCain and Barack Obama flail away at the details of each other's economic blueprints, independent analysts say neither candidate's plan will balance the federal budget any time soon.
McCain this week contended that by the end of his first term he would erase the budget deficit, projected this year at more than $400 billion.
"The problem with the McCain proposal is that he has an ambitious goal out there with no plausible way of achieving it," said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates "generationally responsible" fiscal policy. McCain, he said, "has proposed an enormous amount of tax cuts and a very vague plan of spending restraints."
Obama, Bixby said, "doesn't have the [balanced budget] goal, so we're not quite sure what the fiscal policy goal is. He's got some very ambitious proposals - healthcare coverage and tax breaks for the middle class and for education and investment. It could all be quite expensive, and I think it's uncertain whether he's made credible provisions to pay for them by raising taxes or cutting other spending."
An analysis of the candidates' tax plans, released last month by the nonpartisan Tax Policy Center, estimated that McCain's program would reduce tax revenues by $3.6 trillion over the next 10 years while Obama's would cost $2.7 trillion over that time. And both would greatly increase the national debt, now more than $9 trillion.
The analysis excludes the impact of the candidates' healthcare proposals. Obama's expanded-coverage plan would cost an estimated $50 billion to $65 billion a year, his campaign estimates. McCain's campaign contends his proposal is revenue neutral - offsetting the cost of new tax credits of $2,500 for individuals and $5,000 for families who purchase their own health coverage by making employer-paid insurance benefits a taxable benefit.
Obama has proposed raising about $100 million annually in new revenue by allowing the so-called Bush tax cuts for individuals earning more than $250,000 to expire by 2011. McCain's campaign this week argued that Obama's vote in June for a nonbinding budget resolution, essentially a five-year guideline for the future, reflected his support for increasing taxes on the middle class. The Democratic-led resolution was based on the assumption that the Bush tax cuts on all income levels would expire and return to their higher pre-2001 rates.
FactCheck.org, a project of the nonpartisan Annenberg Public Policy Center at the University of Pennsylvania, called the McCain camp's allegations false and cited a Tax Policy Center analysis that says Obama's campaign proposals would mean tax cuts for all taxpayers earning less than $169,480.
But Tucker Bounds, a McCain spokesman, said the campaign stands by its assertion. "What Barack Obama is proposing on the campaign trail every day is in sharp contrast to the votes that he's cast in the US Senate, and it is incumbent on him to reconcile his voting record with his words or take the heat for his votes that are on the record in the US Senate," Bounds said.
Meanwhile, Democrats yesterday jumped on McCain for remarks he made about Social Security on Monday in Denver, where he relaunched his economic plan. "Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace and it's got to be fixed," McCain told the audience.
"We've got news for him: That's the way Social Security was designed under [Franklin Delano Roosevelt]," US Representative Kathy Castor, Democrat of Florida, told reporters in a conference call with other Obama supporters, arranged by the Democratic National Committee.
Castor and others said McCain is threatening the future solvency of Social Security with his proposal, similar to one by President Bush, to partially privatize Social Security by allowing younger workers to set aside a small amount in personal savings accounts while preserving benefits of current retirees.
August 12, 2008
I believe that social entitlement programs--Social Security, Medicare, Medicaid--will never go bankrupt, but will reach definitely insolvency. The reason for this paradox is that the federal government has the power to borrown and PRINT MONEY!
Like the $100,000 FDIC insurance on bank accounts, which the federal government payed for by both borrowing and printing more money (inflation), when expenditures outpace revenues, the federal government will still be able to pay people their social entitlement benefits by printing the extra money.
The irony here is that inflation helps the wealthy, rich or corporate elite, while it crushes the poor and middle class families. When Social Security and Medicare go into the red, the poor will still receive their social entitlement benefits, but it will be the rich that will reap huge profits.
The stock or equity market will grow at high rates until the baby boomer generation passes away around the middle of the 21st Century. That means that a savvy investor would selectively buy low priced stocks between now and 2020, and then start accumulating bonds between 2021 - 2050.
Another reason why we have recurringly growing federal budget deficits is that the United States does not produce many goods anymore and all of our good jobs have been outsourced to foreign countries in the name of "Globalisation". The more we buy from outside of our own country, the more we will have to borrow for our purchasing power.
The whole system is becoming one big SCAM!
"Social Security benefits will rise: 5.8 percent hike will start in Jan."
By Martin Crutsinger, Associated Press, October 17, 2008
WASHINGTON - Social Security benefits for 50 million people will go up 5.8 percent next year, the largest increase in more than a quarter-century.
The increase, which will start in January, was announced yesterday by the Social Security Administration. It will mean an additional $63 per month for the average retiree.
It's the largest increase since a 7.4 percent jump in 1982, and is more than double the 2.3 percent rise that retirees got in their monthly checks starting in January of this year.
The typical retiree's monthly check will go from $1,090 to $1,153.
But the fatter Social Security check may still seem puny to millions of retirees battered this year by huge increases in energy and food costs. They have also watched as their retirement savings have been assaulted by the biggest upheavals on Wall Street in seven decades.
"Right now many senior citizens are feeling depressed because things seem out of control. They feel like they are in a boat being whipped around by rough seas," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University. "Their purchasing power has been going down because of higher prices for food and energy and a lot of other things while their savings have taken a hit because of what is happening in the markets."
The market turbulence has continued this week with the Dow Jones industrial average plunging by 733 points on Wednesday, the second-largest point drop on record. Earlier this month, the Congressional Budget Office estimated that Americans' retirement plans have lost as much as $2 trillion over the last 15 months - more than 20 percent of their value - because of the market upheaval.
With all the gloomy news, retirees may take little comfort in the new cost of living adjustment. The benefit change is based on the amount the Consumer Price Index increases from July through September from one year to the next.
The increase would have been even higher, but after racing ahead earlier in the year, energy costs fell in August and September, helping to moderate the overall price gain.
The 5.8 percent rise in the cost of living adjustment is a sharp departure from recent years. The cost of living adjustment increases have been below 3 percent for all but three of the past 15 years as the Federal Reserve waged a successful campaign to keep inflation under control.
Even with the big increase, the cost-of-living adjustment is well below the gains of the late 1970s and early 1980s, when the country was in the grips of a decade-long bout of high inflation. The biggest cost of living benefit on record was a 14.3 percent increase in 1980.
Social Security benefits have been adjusted every year since 1975.
In one break for most retirees, the cost of living increase will not be eaten up by higher monthly premiums for the part of Medicare that pays for physician services.
Because of gains in the Medicare Part B trust fund, that premium will hold steady at $96.40 a month, although higher-income people including couples making more than $170,000 annually will see their premiums increase.
Next year's cost of living increase will go to more than 55 million Americans.
More than 50 million receive Social Security benefits while the rest get Supplemental Security Income payments for the poor.
"The Deficit Hawks' Attack on Our Entitlements"
By Robert Kuttner, washingtonpost.com, Monday, February 23, 2009; A19
With the enactment of a large economic stimulus package, fiscal conservatives are using the temporary deficit increase to attack a perennial target -- Social Security and Medicare. The private-equity investor Peter G. Peterson, who launched a billion-dollar foundation last year to warn that America faces $56.4 trillion in "unfunded liabilities," is a case in point. Supposedly, these costs will depress economic growth and crowd out other needed outlays, such as investments in the young. The remedy: big cuts in programs for the elderly.
The Peterson Foundation is joined by leading "blue dog" (anti-deficit) Democrats such as House Budget Committee Chairman John Spratt of South Carolina and his counterpart in the Senate, Kent Conrad of North Dakota. The deficit hawks are promoting a "grand bargain" in which a bipartisan commission enacts spending caps on social insurance as the offset for current deficits.
President Obama's economic advisers devised today's White House fiscal responsibility summit to signal that the president takes the deficit seriously and to lay the groundwork for such a bipartisan deal. Originally, Peterson was slated to be a featured speaker.
But Capitol Hill sources say that Democratic congressional leaders were skeptical of the strategy. The summit has been reduced to a lower-profile, half-day event; Peterson will attend but no longer has top billing, and Obama reportedly is lukewarm about the idea of a commission.
Obama should indeed be wary of such a plan, and official briefings on his first budget suggest that he will drastically reduce the deficit by 2013, but without going after social insurance.
What's wrong with the story of entitlements wrecking the economy? Plenty.
For starters, the $56 trillion "unfunded liability" figure relies on creative accounting. Only about $6.36 trillion is the actual public debt, according to the U.S. Treasury. Most of the number Peterson cites is a combination of the 75-year worst-case projections for Social Security, Medicare and Medicaid.
These three programs face very different challenges and remedies. Social Security's accounts are actually near long-term balance. The Congressional Budget Office puts the 75-year shortfall at only about one-third of 1 percent of projected gross domestic product.
Social Security is financed by taxes on wages -- and since the mid-1970s, wage growth has stagnated. If median wages rose with productivity growth, as they did during the first three decades after World War II, Social Security would enjoy a big surplus. Even without a raise for working America, Social Security needs only minor adjustments.
Medicare really does face big deficits. But that's because Medicare is part of a hugely inefficient, fragmented health insurance system. It makes no sense to "reform" Medicare in isolation.
If we just cap Medicare, needy seniors would get bare-bones care while more affluent people could supplement their insurance out of pocket. The decent cure for Medicare's cost inflation lies in comprehensive universal health insurance so that the entire system is more efficient and less prone to inflation. You don't hear many budget hawks supporting that brand of reform.
The deficit hawks' story also contends that we are sacrificing our children's future by too much (deficit) spending on the elderly. In fact, today's young adults are already falling out of the middle class because of the high costs of the investments we don't adequately finance socially -- child care, college tuition and health insurance. But fiscal conservatives seldom call for increased investment in the young. Today's young, of course, will be tomorrow's retirees, and they will need social insurance, too.
The overall bottom line? The economy we bequeath to our children has everything to do with getting growth back on track and almost nothing to do with imagined future deficits.
History provides a parallel. At the end of World War II, the public debt was about 120 percent of GDP -- about three times today's ratio. Yet the heavily indebted wartime economy stimulated a quarter-century postwar boom -- because all that debt went to recapitalize American industry, advance science and technology, retrain our unemployed and put them to work.
We need to increase public spending and debt now to restore economic growth and then gradually reduce the debt ratio once recovery comes. Social Security has little to do with this challenge. Nor does Medicare, if we reform our overall health system.
Since the early 1980s, Peter G. Peterson has been warning that future entitlement deficits would crash the economy. Yet when the crash came, the cause was not deficits but wild speculation on Wall Street.
Now, with 401(k) plans swooning and health benefits being cut, Social Security and Medicare are the two bedrock programs that keep tens of millions of elderly Americans from destitution. Why perversely cut these programs to pay for the sins of Wall Street? The attack on social insurance is really an ideological assault, dressed up as fiscal high-mindedness.
Robert Kuttner, co-editor of the American Prospect and a senior fellow at the New York public policy group Demos, is most recently the author of "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."
The Boston Globe, Op-Ed, ALICIA H. MUNNELL
"A bright light in a dismal landscape"
By Alicia H. Munnell, February 25, 2009
PRESIDENT Barack Obama has said that overhauling Social Security and Medicare would be "a central part" of his administration's efforts to contain federal spending. But amid all the economic calamity, the Social Security program is functioning perfectly, meeting the crucial economic needs for millions of Americans. When older workers are losing their jobs and their 401(k) accounts are down about 30 percent, the ability to claim Social Security benefits serves as a backstop against severe economic hardship. Therefore, policymakers should tread carefully.
Social Security checks are not large, but they are reliable. For workers who claim benefits at age 66, the full retirement age, monthly benefits range from $850 for low-paid workers to about $2,200 for those who have consistently earned the maximum taxable amount. In fact, many workers claim early and receive reduced benefits. But Social Security benefits are increased each year to reflect changes in the cost of living, and they continue for as long as the recipient lives. So, despite the modest amounts, the benefits are predictable and people can count on them.
Are these valuable Social Security benefits endangered by the current economic crisis?
Certainly, a higher-than-predicted unemployment rate means that fewer people will be working and contributing to the system than originally projected. This shortfall could be a problem if Social Security operated on a pure pay-as-you-go basis, where today's contributions were the only source of funds for benefit payments. But the system has always had a contingency reserve to serve as a buffer in the event of economic downturns, and today's trust fund is more than adequate to ensure full benefit payments for decades.
How about Social Security's long-run outlook?
A worse-than-expected short-term economy will have only a tiny impact on Social Security's 75-year projections; the long-run costs of the program are driven mainly by the aging of the population, which has not changed. Over the next 75 years, the Social Security actuaries project a program shortfall equal to 1.70 percent of taxable earnings.
This number equals the size of the tax increase required to maintain solvency for 75 years. That is, if the payroll tax rate were raised immediately by roughly 1.70 percentage points - 0.85 percentage point each for the employee and the employer - the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2082.
A lasting fix for Social Security would require a little more attention to the fact that the aging of the population will present an increasing financial challenge over the 75-year period. Thus, a lasting fix for Social Security could have smaller tax increases initially and larger ones later. This pattern would avoid the prospect of suddenly running short of money right after the end of the 75 years, and would achieve "sustainable solvency."
When crafting a solution to Social Security's long-term deficit, the lesson from the current financial crisis is that Social Security benefits are crucially important to older Americans.
This importance has increased with the shift in the private sector from traditional defined benefit pensions, which promised benefits for life, to 401(k) plans, which are exposed to the vagaries of the stock market. Americans, with little else to rely on in retirement, may be willing to pay up to maintain the country's successful Social Security program.
Alicia H. Munnell is a professor of management and director of the Center for Retirement Research at Boston College.
With the Consumer Price Index marking a decrease from last year, Social Security benefits likely won't rise any time soon. (Getty Images)
"Will Your Social Security Check Be Too Low?: Social Security Benefits Unlikely to Increase, Spelling Trouble for Seniors With High Health Care Costs"
By ALICE GOMSTYN - ABC NEWS Business Unit - August 14, 2009
Whether you're talking bus tickets or bags of groceries, prices for goods purchased on a daily basis are staying about the same -- or even dropping.
As expected, the monthly Consumer Price Index, reported by the government this morning was zero for the month of July. In comparison to a year ago, the CPI dropped 2.1 percent.
For most consumers, that's good news, but for the some 30 million senior citizens who receive Social Security benefits, this trend comes with a big downside: It means that their Social Security checks, which are pegged to the CPI, likely won't increase next year.
It's especially a problem for senior citizens such as Sylvia Schneider, 80, of New York City, who says her monthly Social Security check is her primary form of income. The average monthly benefit is just over $1,050 this year, according to the Social Security Administration.
"The government has a right not to increase it. I understand that," Schneider said. But, she added, she's still worried about making ends meet.
Escalating health care costs are sure to keep making times tight for the country's older population, said Cristina Martin Firvida, director of economic security for AARP.
"It is no question that it will be a hardship for individuals who are going to continue to see an increase in their out-of-pocket health care expenses to not have a cost-of-living increase in Social Security," Firvida said.
Last year, when food and energy costs were squeezing wallets across the country, seniors saw a jump in benefits. Social Security Administration increased payments by 5.8 percent.
Not so this year. In April, the Congressional Budget Office predicted that by September, price changes would be small enough to head off any increase in Social Security benefits.
Government reports on the CPI since then, including today's, seem to indicate that that forecast will likely soon become reality, with all of this year's monthly increases falling below 1 percent.
If the monthly increases stay low for the next three months, experts say, then Social Security benefits definitely won't rise in 2010 -- an unprecedented event.
The official benefits announcement will be made in October.
A Bad Match for the Elderly
While the notion of the government's keeping Social Security payments static may bring some cheer to those worried that the system is headed for bankruptcy, it's of little comfort for seniors who need the money now.
The problem, critics say, is that the metric the Social Security Administration relies on to determine increases in benefits isn't tailored to the elderly.
The Social Security Administration uses a part of the CPI known as the CPI-W, which measures spending patterns of blue-collar workers. Social Security payments have been linked to the CPI-W for more than three decades.
But the spending patterns measured by the CPI-W and the general CPI -- also known as the CPI-U -- don't match those of the elderly, especially in the case of health care: The CPI-W assumes people spend about 5 percent of their income on health care. For many senior citizens, that number is much higher.
"The basket of goods that are used in the CPI are not represented by the basket of goods consumed by the elderly. That's the big issue," said Praveen K. Kopalle, an associate professor of business administration at the Tuck School of Business at Dartmouth College.
"They gripe about it a lot," said Kopalle, who studies consumer pricing. As seniors pay more for health care and other services that don't factor prominently into the CPI, the apparent disconnect between their cost of living and their benefits creates a "conundrum" for them, he said.
The solution to the problem, some say, is to establish a pricing index that focuses squarely on the elderly and their spending habits.
Help From Congress Unlikely?
A bill making its way through Congress aims to do just that: Under the Consumer Price Index for Elderly Consumers Act of 2009, introduced in the House in May 2009, spending by Americans 62 or older would be monitored and used to calculate Social Security and Medicare benefits.
"We must provide the basic benefits that our seniors can count on, regardless of the ups and downs of the economy," Rep. Charles A. Gonzalez, D-TX, said in a written statement earlier this summer. "My legislative proposal is a rational approach to a very real problem."
But if the bill is passed -- never a sure bet, especially at a time when health care reform itself has seemed to overshadow everything else -- it won't be a quick fix, experts say.
The U.S. Bureau of Labor Statistics has actually had an elderly spending index for years, but it's an experimental one. Making the index viable for use on things like Social Security benefits, said BLS economist Sanjeev Katz, would require overcoming some serious stastical hurdles.
The new index wouldn't be ready in time to force an increase in Social Security benefits in 2010, said AARP's Firvida.
"It's not ready for primetime," she said. "You can't just ramp this up and replace the CPI-W."
AARP, she said, is holding a forum in the fall to try to address the issue and other CPI concerns in a more immediate fashion. The forum doesn't yet have a name.
The lack of a benefit increase, she said, "is not the kind of contingency I think that people planned for."
ABC News' Nathalie Tadena contributed to this report.
"Millions face shrinking Social Security payments"
By Stephen Ohlemacher, Associated Press Writer, August 23, 2009
WASHINGTON – Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise. The trustees who oversee Social Security are projecting there won't be a cost of living adjustment (CoLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975.
By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people in the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.
"I will promise you, they count on that COLA," said Barbara Kennelly, a former Democratic congresswoman from Connecticut who now heads the National Committee to Preserve Social Security and Medicare. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal."
Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.
Advocates say older people still face higher prices because they spend a disproportionate amount of their income on health care, where costs rise faster than inflation. Many also have suffered from declining home values and shrinking stock portfolios just as they are relying on those assets for income.
"For many elderly, they don't feel that inflation is low because their expenses are still going up," said David Certner, legislative policy director for AARP. "Anyone who has savings and investments has seen some serious losses."
About 50 million retired and disabled Americans receive Social Security benefits. The average monthly benefit for retirees is $1,153 this year. All beneficiaries received a 5.8 percent increase in January, the largest since 1982.
More than 32 million people are in the Medicare prescription drug program. Average monthly premiums are set to go from $28 this year to $30 next year, though they vary by plan. About 6 million people in the program have premiums deducted from their monthly Social Security payments, according to the Social Security Administration.
Millions of people with Medicare Part B coverage for doctors' visits also have their premiums deducted from Social Security payments. Part B premiums are expected to rise as well. But under the law, the increase cannot be larger than the increase in Social Security benefits for most recipients.
There is no such hold-harmless provision for drug premiums.
Kennelly's group wants Congress to increase Social Security benefits next year, even though the formula doesn't call for it. She would like to see either a 1 percent increase in monthly payments or a one-time payment of $150.
The cost of a one-time payment, a little less than $8 billion, could be covered by increasing the amount of income subjected to Social Security taxes, Kennelly said. Workers only pay Social Security taxes on the first $106,800 of income, a limit that rises each year with the average national wage.
But the limit only increases if monthly benefits increase.
Critics argue that Social Security recipients shouldn't get an increase when inflation is negative. They note that recipients got a big increase in January — after energy prices had started to fall. They also note that Social Security recipients received one-time $250 payments in the spring as part of the government's economic stimulus package.
Consumer prices are down from 2008 levels, giving Social Security recipients more purchasing power, even if their benefits stay the same, said Andrew G. Biggs, a resident scholar at the American Enterprise Institute, a Washington think tank.
"Seniors may perceive that they are being hurt because there is no CoLA, but they are in fact not getting hurt," Biggs said. "Congress has to be able to tell people they are not getting everything they want."
Social Security is also facing long-term financial problems. The retirement program is projected to start paying out more money than it receives in 2016. Without changes, the retirement fund will be depleted in 2037, according to the Social Security trustees' annual report this year.
President Barack Obama has said he would like tackle Social Security next year, after Congress finishes work on health care, climate change and new financial regulations.
Lawmakers are preoccupied by health care, making it difficult to address other tough issues. Advocates for older people hope their efforts will get a boost in October, when the Social Security Administration officially announces that there will not be an increase in benefits next year.
"I think a lot of seniors do not know what's coming down the pike, and I believe that when they hear that, they're going to be upset," said Sen. Bernie Sanders, an independent from Vermont who is working on a proposal for one-time payments for Social Security recipients.
"It is my view that seniors are going to need help this year, and it would not be acceptable for Congress to simply turn its back," he said.
On the Net:
Social Security Administration: www.ssa.gov
National Committee to Preserve Social Security and Medicare: www.ncpssm.org
"Social Security cost of living increases since 1975"
By The Associated Press The Associated Press, Monday, August 24, 2009
The Social Security trustees project no cost of living increase for the next two years, something that has not happened since automatic adjustments were adopted in 1975. The annual percentage increase in payments:
1983 (see note)
Note: Before 1983, cost of living increases were awarded in July. Starting in 1984, they have been awarded in January. The change moved 1983's adjustment to January 1984.
x-Projected by Social Security trustees.
Source: Social Security Administration
"Three liberals, and three failures"
The Berkshire Eagle, Letters, 9/1/2009
What do the governor of New York, the governor of Massachusetts, and President Obama have in common? If your answer was they are all black, then my friend, you are a racist. The real answer is that all of these politicians are liberals.
David Paterson, the governor New York, has his state in near total collapse, with no leadership, one of the highest taxes in the nation, and has destroyed all that Governor Pataki had accomplished. Deval Patrick, governor of our once great state, raised taxes, has high unemployment and decreased population, and again, destroyed all that Governor Mitt Romney had accomplished.
Obama; I don’t know where to start with this liberal failure. Stimulus package -- failure. Bailouts -- failure. Cash from this clunker -- failure. Health reform -- This is the most dangerous of all that this liberal Obama is trying to force down our throats. If this health care reform package passes, America as we all once knew it is doomed. If anyone has done their homework you can plainly see that socialized medicine has failed every place it has been tried.
Last, but not least, as a senior citizen who worked and paid my Social Security taxes from day one, I am now told by this liberal Obama that I am not worth a cost of living raise, that most of our hard earned tax money has gone to those who contributed nothing to our once great society. Free- loaders.
Thanks for nothing, Obama liberals. Change stinks.
THOMAS D. GILARDI
"Revised formula counts more Americans in poverty"
By Hope Yen, Associated Press Writer, September 4, 2009
WASHINGTON – The poverty rate among older Americans could be nearly twice as high as the traditional 10 percent level, according to a revision of a half-century-old formula for calculating medical costs and geographic variations in the cost of living.
The National Academy of Science's formula, which is gaining credibility with public officials including some in the Obama administration, would put the poverty rate for Americans 65 and over at 18.6 percent, or 6.8 million people, compared with 9.7 percent, or 3.6 million people, under the existing measure. The original government formula, created in 1955, doesn't take account of rising costs of medical care and other factors.
"It's a hidden problem," said Robin Talbert, president of the AARP Foundation, which provides job training and support to low-income seniors and is backing legislation that would adopt the NAS formula. "There are still many millions of older people on the edge, who don't have what they need to get by."
If the academy's formula is adopted, a more refined picture of American poverty could emerge that would capture everyday costs of necessities besides just food. The result could upend long-standing notions of those in greatest need and lead eventually to shifts in how billions of federal dollars for the poor are distributed for health, housing, nutrition and child-care benefits.
The overall official poverty rate would increase, from 12.5 percent to 15.3 percent, for a total of 45.7 million people, according to rough calculations by the Census Bureau. Data on all segments, not only the elderly, would be affected:
• The rate for children under 18 in poverty would decline slightly, to 17.9 percent.
• Single mothers and their children, who disproportionately receive food stamps, would see declines in the rates of poverty because noncash aid would be taken into account. Low-income people who are working could see increases in poverty rates, a reflection of transportation and child-care costs.
• Cities with higher costs of living, such as New York, Chicago and San Francisco, would see higher poverty rates, while more rural areas in the Midwest and South might see declines.
• The rate for extreme poverty, defined as income falling below 50 percent of the poverty line, would decrease due to housing and other noncash benefits.
• Immigrant poverty rates would go up, due to transportation costs and lower participation in government aid programs.
The changes have been discussed quietly for years in academic circles, and both Democrats and Republicans agree that the decades-old White House formula, which is based on a 1955 cost of an emergency food diet, is outdated.
The current calculation sets the poverty level at three times the annual cost of groceries. For a family of four that is $21,203. That calculation does not factor in rising medical, transportation, child care and housing expenses or geographical variations in living costs. Nor does the current formula consider noncash aid when calculating income, despite the recent expansion of food stamps and tax credits in the federal economic stimulus and other government programs. The result: The poverty rate has varied little from its current 12.5 percent.
Next week, the Census Bureau will publish official poverty figures for 2008 with a cautionary note about the shortcomings. The agency says it will expedite release of alternative numbers in the following weeks, because of the interest expressed by lawmakers and the Obama administration in seeing a fuller range of numbers.
"The current poverty measure does a very bad job of measuring the impact of quite a few of our anti-poverty policies," Rebecca Blank, the Commerce Department's undersecretary of economic affairs, said in an interview. "It isn't meaningless, but it isn't complete."
Although the White House Office of Management and Budget dictates how federal poverty is measured, legislation pending in Congress would require use of the National Academy approach. Advocates are hoping the White House may act on its own.
Cities are already showing interest.
In New York City, roughly one in three senior citizens fell below the poverty line after Mayor Michael Bloomberg adopted the new formula last year; state officials in Albany, N.Y., plan to publish their revised numbers next month. Los Angeles, Miami, Washington, San Francisco and Chicago also have been considering a switch.
Nationally, official poverty rates for older Americans have improved significantly over the past 30 years due to expansions of Social Security and Supplemental Security Income. But many older people with modest cash incomes would fall below the poverty line under the NAS formula due to out-of-pocket expenses from rising Medicare premiums, deductibles and a coverage gap in the prescription drug benefit that is known as the "doughnut hole."
The NAS figures could take on added significance at a time when the government is touting an overhaul of Medicare and Social Security as its best hope for reducing the ballooning federal debt.
On the Net:
Census Bureau: www.census.gov
Commerce Department: www.commerce.gov
"House to vote to eliminate Medicare premium hikes"
By Stephen Ohlemacher, Associated Press Writer, September 23, 2009
WASHINGTON --House leaders have scheduled a vote Thursday on a bill that would eliminate premium increases for Medicare Part B next year.
Older Americans shouldn't have to pay higher Medicare premiums because they are not expected to get a cost-of-living increase from Social Security, said Rep. Charles Rangel, D-N.Y.
With no Social Security COLA, the vast majority of Medicare recipients already are exempt from premium increases for Part B, which provides coverage for doctor's visits. However, a small group of seniors would face increases. The standard premium is projected to go from $96.40 a month this year to $104.20 a month in 2010. Some could face premiums high as $120 a month, according to House Democrats.
The House bill would eliminate the premium increases, using $2.8 billion from a fund established in 2008 to improve Medicare.
"There is absolutely no reason this burden should fall on seniors and people with disabilities, especially during difficult economic times," said Rangel, chairman of the House Ways and Means Committee, which oversees Medicare.
One Republican lawmaker complained about the short notice of the vote. The bill was unveiled Wednesday and a vote was scheduled for Thursday, with no public hearings.
"Why couldn't we have held a hearing on this and marked the bill up in the month that we've been back?" said Rep. Joe Barton, R-Texas.
Social Security COLAs and Medicare Part B premiums have been tied together for years because most seniors have their Medicare premiums deducted from their Social Security payments.
The Social Security Administration projects no cost-of-living increases for the next two years because the adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.
Several lawmakers have introduced bills that would provide Social Security increases, regardless of inflation. If they fail, it would mark the first year without an increase since automatic increases were adopted in 1975.
About 42 million seniors and people with disabilities are enrolled in Medicare Part B. With no Social Security COLA, 75 percent of Medicare Part B recipients are automatically exempt from premium increases.
Among those facing premium increases, if Congress does not act:
-- Low-income seniors on both Medicare and Medicaid. Medicaid, the state-federal health insurance program for the poor, pays their Medicare premiums, meaning states would bear some of the costs.
-- High-income seniors on Medicare Part B -- singles making more than $85,000 a year and couples making more than $170,000.
-- New enrollees in Medicare Part B would pay the higher premiums, if Congress does not act.
"These hikes would threaten the pocketbooks of new enrollees and retirees, as well as state budgets, which cover premiums for low-income seniors," said Rep. Pete Stark, D-Ca., chairman of a House subcommittee on health.
"Early retirements strain Social Security system"
By Stephen Ohlemacher, Associated Press Writer, September 27, 2009
WASHINGTON – Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.
The deficits — $10 billion in 2010 and $9 billion in 2011 — won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.
Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn't expect the increase to be so large.
What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security.
"A lot of people who in better times would have continued working are opting to retire," said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. "If they were younger, we would call them unemployed."
Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can't afford to retire, especially after the financial collapse demolished their nest eggs.
Some have no choice.
Marylyn Kish turns 62 in December, making her eligible for early benefits. She wants to put off applying for Social Security until she is at least 67 because the longer you wait, the larger your monthly check.
But she first needs to find a job.
Kish lives in tiny Concord Township in Lake County, Ohio, northeast of Cleveland. The region, like many others, has been hit hard by the recession.
She was laid off about a year ago from her job as an office manager at an employment agency and now spends hours each morning scouring job sites on the Internet. Neither she nor her husband, Raymond, has health insurance.
"I want to work," she said. "I have a brain and I want to use it."
Kish is far from alone. The share of U.S. residents in their 60s either working or looking for work has climbed steadily since the mid-1990s, according to data from the Bureau of Labor Statistics. This year, more than 55 percent of people age 60 to 64 are still in the labor force, compared with about 46 percent a decade ago.
Kish said her husband already gets early benefits. She will have to apply, too, if she doesn't soon find a job.
"We won't starve," she said. "But I want more than that. I want to be able to do more than just pay my bills."
Nearly 2.2 million people applied for Social Security retirement benefits from start of the budget year in October through July, compared with just under 1.8 million in the same period last year.
The increase in early retirements is hurting Social Security's short-term finances, already strained from the loss of 6.9 million U.S. jobs. Social Security is funded through payroll taxes, which are down because of so many lost jobs.
The Congressional Budget Office is projecting that Social Security will pay out more in benefits than it collects in taxes next year and in 2011, a first since the early 1980s, when Congress last overhauled Social Security.
Social Security is projected to start generating surpluses again in 2012 before permanently returning to deficits in 2016 unless Congress acts again to shore up the program. Without a new fix, the $2.5 trillion in Social Security's trust funds will be exhausted in 2037. Those funds have actually been spent over the years on other government programs. They are now represented by government bonds, or IOUs, that will have to be repaid as Social Security draws down its trust fund.
President Barack Obama has said he would like to tackle Social Security next year.
"The thing to keep in mind is that it's unlikely we are going to pull out (of the recession) with a strong recovery," said Kent Smetters, an associate professor at the University of Pennsylvania's Wharton School. "These deficits may last longer than a year or two."
About 43 million retirees and their dependents receive Social Security benefits. An additional 9.5 million receive disability benefits. The average monthly benefit for retirees is $1,100 while the average disability benefit is about $920.
The recession is also fueling applications for disability benefits, said Stephen C. Goss, the Social Security Administration's chief actuary. In a typical year, about 2.5 million people apply for disability benefits, including Supplemental Security Income. Applications are on pace to reach 3 million in the budget year that ends this month and even more are expected next year, Goss said.
A lot of people who had been working despite their disabilities are applying for benefits after losing their jobs. "When there's a bad recession and we lose 6 million jobs, people of all types are going to be part of that," Goss said.
Nancy Rhoades said she dreads applying for disability benefits because of her multiple sclerosis. Rhoades, who lives in Orange, Va., about 75 miles northwest of Richmond, said her illness is physically draining, but she takes pride in working and caring for herself.
In June, however, her hours were cut in half — to just 10 a week — at a community services organization. She lost her health benefits, though she is able to buy insurance through work, for about $530 a month.
"I've had to go into my retirement annuity for medical costs," she said.
Her husband, Wayne, turned 62 on Sunday, and has applied for early Social Security benefits. He still works part time.
Nancy Rhoades is just 56, so she won't be eligible for retirement benefits for six more years. She's pretty confident she would qualify for disability benefits, but would rather work.
"You don't think of things like this happening to you," she said. "You want to be in a position to work until retirement, and even after retirement."
On the Net:
Social Security retirement planner: www.ssa.gov/retire2/retirechart.htm
Congressional Budget Office:
"Your Guide to Social Security, Part One"
By Philip Moeller, US News & World Report, December 29, 2009
Social Security is our most important retirement benefit. Never intended as a source of primary retirement income, it has become just that for most retirees. And when 401(k)s, IRAs, and other retirement funds took such a drubbing in the 2008-2009 stock market dive, the relative importance of Social Security became even greater.
Yet, Social Security receives little attention compared with the attention paid to private retirement plans--401(k)s, IRAs, target date funds, Roth IRA conversions, and other retirement investments. With the clock winding down on a challenging year and an even tougher decade, it's a good time to review the long-standing rules that drive Social Security payments. This understanding might help guide your plans for using this fundamental retirement benefit, and shed light on how benefits will be changing in future years.
It may help to begin this trip with a cup or two of coffee, brewed strong. There is just no escaping the presence of a lot of numbers when dealing with Social Security. For the truly motivated, it also will help if you go find the most recent "Your Social Security Statement" that you receive each year from the Social Security Administration. This is the most significant retirement document that most people receive. It lays out the record of your annual earnings and explains the benefit amounts to which you're entitled, including how those amounts will change based on the age at which you decide to begin taking benefits.
More than 25 years ago, Social Security benefits began being indexed to inflation. Using the rise in consumer prices in the 12 months ending each September, Social Security applied a cost of living adjustment, or COLA, to the following year's benefits. This has been a true lifesaver to recipients, and never more so than in 2009. That's because the spike in gasoline prices in 2008 contributed to a 5.8 percent COLA for 2009 benefits--the largest one-year boost in the COLA's history. As the economy continued to tank in 2009, so did the prices of fuel and lots of other items, and consumer inflation largely disappeared in the 12 months ended last September. So, there will be no Social Security COLA in 2010 --another first for the program.
This lack of inflation not only affects current Social Security recipients. It turns out that the basic level of benefits for newly eligible Social Security recipients also is affected by inflation levels. Understanding that impact requires a trip deep into the rules and formulas governing Social Security benefits. Fortunately, we have a great guide--Stephen C. Goss, chief actuary at the Social Security Administration.
Social Security benefits are based on wage earnings, and exclude income from investments and other holdings. People must have earned wages in at least 40 quarters to qualify for benefits, and they must have earned at least a certain amount of money in a quarter for it to be counted. In 2009, the minimum quarterly earnings amount was $1,090. It rises each year to reflect changing wage and price levels; in 1979, for comparison, it was only $260.
For people with enough earnings to qualify, Social Security then takes the average of their 35 highest years of wage earnings. But it doesn't just take the actual amount of money earned each year, Goss explained. It engages in extensive calculations to equalize the value of wages over time. Given the long-term effect of inflation, for example, $10,000 earned in 1980 is worth a lot more than $10,000 earned in 2009.
The equalization process involves looking at every IRS W-2 and, for self-employment earnings, Form 1099, that is filed by taxpayers each year. I always thought my W-2s were only of interest to the IRS but Goss says those records are actually processed for the IRS by Social Security. "We get all the W-2s and we process them, and we add up all your wages," he says. "We do that for everybody in the country who has wages reported. We look at the total amount of wages and the total number of people reporting wages." Dividing the two numbers produces a national average wage for each year, and tracking the changes of that number over time produces a national average wage index.
Going back to our example of wages earned in 1980, Social Security would look at the ratio of the average national wage in 2009 and the national average wage in 1980 and adjust the value of what you earned in 1980 up to 2009 levels. It then would take the 35 highest annual adjusted earnings years and calculate an average.
Up until people reach the age of 60, this 35-year average is adjusted each year to reflect inflation and changing national wage levels. In the year in which you turn 60, Social Security stops indexing your wages. Here's why. People can elect to begin receiving Social Security benefits as early as the age of 62, Goss explained. There's a two-year lag between when people report wage earnings on their W-2s and when the national wage index is calculated. The 2009 index, for example, is announced in late 2008, and is based on W-2s for 2007 earnings. So, in order for the agency to calculate the benefits of someone reaching the age of 62 in 2009, its latest wage information is based on how much money the person earned through 2007, when they turned 60.
Many people, of course, continue to work after they are 60 years old. Their wages for those years are not adjusted for inflation, and are compared with the wage-adjusted years to determine the top 35 years. This process continues until the year in which a person elects to begin receiving benefits. Once that happens, the 35 highest earnings years are averaged, the result is divided again by 12, and the agency determines a person's average indexed monthly earnings. This is a key figure, Goss said, and "becomes in effect your long-term career earnings level."
"Your Guide to Social Security, Part Two"
By Philip Moeller, U.S. News & World Report, December 30, 2009
Here is the second of three columns explaining how Social Security benefits are determined, and how they are affected by changing wage and inflation levels. I was led through this process by the Social Security Administration's chief actuary, Stephen C. Goss. The first installment explained how the agency calculates the wage base that it uses to determine each person's individual benefit.
This wage base is called the average indexed monthly earnings. The individual benefit is called your primary insurance amount (PIA). Regardless of when you elect to begin receiving Social Security benefits--as early as age 62 or as late as age 70--the money you will get each month will range from 75 percent to 132 percent of your PIA.
Social Security was designed to provide its strongest support to lower-income workers. It caps the contributions you make into it based on your earnings. This year, for example, the employee share of payments is 6.2 percent up to an annual ceiling of $106,800; there is a separate Medicare tax of 1.45 percent, with no earnings ceiling. The earnings ceiling changes with inflation each year. It was $76,200 in 2000, $51,300 in 1990 and only $25,900 in 1980. Because there was no price inflation in the year ended last September, there will be no change to this ceiling in 2010.
Beyond these caps, the program's payout calculations are weighted to aid lower-income earners and people who have not worked their entire lives. As the first column explained, your Social Security benefits are based on your 35 highest years of earnings, indexed for wage inflation. If you've worked fewer than 35 years, Social Security uses a zero for each of those years. So, for example, a person with 20 years of earnings history will have a 35-year average that includes zeros for 15 of those years. This obviously pulls down that person's averaged indexed monthly earnings.
To help compensate, the program translates a person's average indexed monthly earnings (AIME) into their primary insurance amount by using a series of calculations. For the first $744 of a person's AIME, 90 percent becomes part of their PIA. For the next band of AIME--from $744 to $4,483--32 percent becomes part of the PIA. And for any AIME above $4,483, only 15 percent becomes part of the PIA. So, while people earning $100,000 a year do benefit from higher Social Security payments than people with lower earnings, only a small percentage of those higher earnings applies to their Social Security benefit. The formula is what economists describe as progressive, meaning that it is weighted toward lower-income workers.
The $744 and $4,483 amounts are called bend points by Social Security, and they are adjusted each year to reflect changes in the national average wage index. As explained in the first column of this series, the wage index is calculated each year by adding up the value of all W-2 and 1099 self-employment earnings statements in a year and dividing them by the number of people filing statements. The resulting average wage is then compared with previous years' average wages to develop an index. There is a two-year lag, Goss explained. The change in bend points from 2008 to 2009 is based on the change in average wages from 2006 to 2007. The bend points 30 years ago, by comparison, were only $180 and $1,085. The 90, 32, and 15 percent brackets are set in law and do not change each year.
(Social Security uses a similar approach to determine a family's maximum benefits, a situation that usually happens when one or more children is receiving Social Security benefits. The family maximum is determined using three bend points and four brackets. For 2009, the formula adds 150 percent of the first $950 of the AIME of the person whose benefits are being drawn upon, 272 percent of the AIME between $950 and $1,372, 134 percent of the AIME between $1,372 and $1,789, and 175 percent of the AIME above $1,789. There is a slightly different formula used for the family maximum of a disabled worker.)
Each year, Social Security calculates its estimated PIA for you, based on your current earnings history. The figure is included in an annual mailing called "Your Social Security Statement." It's the monthly payment you would receive if you continue working and do not elect to begin receiving benefits until you've reached what Social Security calls your full retirement age.
Your PIA is determined by your own lifetime earnings. If you're 60 or older, any future earnings you make will not be adjusted downward for any national wage inflation that's occurred since you turned 60. That might make it easier for those years to qualify as among your 35 best earnings years. And the boost to your primary insurance amount could be helpful.
During a recession, with incomes falling and unemployment rising, the odds are that national annual wage changes will be modest. So, if you're nearing an age at which you are entitled to receive Social Security benefits, national wage changes will not by themselves boost the primary insurance amount presented in your most recent annual statement from Social Security. Also, keep in mind that it takes Social Security two years to factor in the impact of changing wage patterns on your benefits. So, you should see some increase in your AIME next year because it will be based on 2008 wages.
"Your Guide to Social Security, Part Three"
By Philip Moeller, U.S. News & World Report, December 31, 2009
Understanding how Social Security works should be an essential part of your thinking as you plan for your later years. Those were the years we used to call retirement. Now, as the recession moves into its third year, they may be the years when you contemplate continuing to work. And as you labor, you may wonder what ever happened to your retirement dreams. Where is that lakeside cabin, stuffed with a lifetime's mementos and nestled near a crook in a cool stream?
As 2010 draws to a close, it marks the end of a very difficult decade. If you're like me, it's also an alarming reminder of how relentlessly time marches on. Just yesterday, I was concerned about the Y2K bug as the 20th century ended. Now, the first decade of the new millennium has already snuck by me into the history books.
But if the recession has taught us anything, it's that we can't take things for granted and that a successful future will not happen by accident. We have to work at it, and this includes improving our financial planning and money skills. Social Security is far and away the most valuable retirement benefit for most people. Reading this three-part guide explaining how your Social Security benefits are determined might just help you stock that cool stream with some fish, or at least an occasional six-pack of your favorite brew.
The first two installments explained how Social Security collects your lifetime earnings history. It then adjusts your wages to even out the impact of inflation, determines what it calls your average indexed monthly earnings, and uses this number to set your primary insurance amount (PIA). This is the level of benefits you are set to receive when you reach what the agency calls full retirement age.
Everyone's full retirement age used to be 65, but Congress approved permanent increases to this age more than 30 years ago in its last major Social Security reform. The full retirement age was bumped up by two months for each birth year between 1938 and 1943, winding up at 66 for someone born in 1943. It stays at 66 for people born between 1943 and 1954, and then rises again in two-month increments from 66 to 67 for people born between 1955 and 1960. Given continued increases in life spans, and the fact that the program is once again running out of money, Congress will be required to shore up the program again in the near future. Many people expect retirement ages to be raised beyond 67 for younger workers when this happens.
The examples here are all for people whose full retirement age is 66. If you were born before 1943 or after 1954, and want to see the slightly different details for your Social Security calculations, you can find them on page 112 of the detailed annual report that Social Security is required to prepare each year. It sets forth the financial condition of the program.
Here are the percentages of the primary insurance amount that a person would receive at the various ages at which they can elect to begin receiving benefits:
--Age 62: 75 percent of PIA.
--Age 63: 80 percent of PIA.
--Age 64: 86 2/3 percent of PIA.
--Age 65: 93 1/3 percent of PIA.
--Age 66: 100 percent of PIA.
--Age 67: 108 percent of PIA.
--Age 68: 116 percent of PIA.
--Age 69: 124 percent of PIA.
--Age 70: 132 percent of PIA.
Expressed as a dollar example, a person entitled to a $1,000 monthly primary insurance amount at age 66 would receive only $750 a month if they began taking benefits at the age of 62. If they waited until the age of 70, their monthly benefit would increase to $1,320. Often, people can't afford to wait and begin taking benefits as soon as they turn 62. This certainly has been the case during the recession.
But if you can wait, your Social Security benefits will increase by 8 percent a year, and will increase your odds of being able to live comfortably for the longer life spans that are becoming common. The average life expectancy in the U.S. is about 78 but this includes people who died when they were younger. People who already have reached their 60s can expect to live, on average, into their 80s, and a substantial percentage will hit 90.
Another thing to keep in mind is that people who begin receiving benefits before their full retirement age can reset these percentages if they go back to work. Stephen C. Goss, chief actuary of the Social Security Administration, provided this example: A woman stops working and begins taking benefits at the age of 62, receiving 75 percent of her PIA. She then decides to go back to work. If she worked another year and stopped receiving Social Security benefits during that period, she would receive 80 percent of her PIA when she resumed receiving benefits. However, Goss said, this higher percentage would not kick in until she had reached the full retirement age of 66.
If she kept receiving Social Security, her benefits would be reduced by $1 for every $2 of her annual earnings between $14,160 and $37,680. For earnings above $37,680, her benefits would be reduced by $2 for every $3 she earned. However, Goss explained, she would still get a proportional credit that would raise her PIA when she reached full retirement age. For example, if she worked for three years and her Social Security benefits were cut in half because of outside earnings, she would get six months of credit toward a higher PIA for each of those three years, or 18 months in total.
The step-up also applies if you go back to work at even later ages, he said. Say you began receiving benefits when you reached the full retirement age of 66. You'd be getting 100 percent of your PIA. If you went back to work for a year at the age of 68 and stopped your benefits, you'd start receiving 108 percent of your primary insurance amount when you resumed collecting benefits at the age of 69. And if those new earnings are large enough to make this year one of your top 35 earnings years, your PIA will be increased a bit as well. (There is no test on outside earnings once someone reaches full retirement age. So, if you could afford it, you could elect to forgo Social Security benefits even without getting a job. The percentage of your PIA that you would receive when you resumed benefits would rise by 8 percent for each year your benefits were suspended.)
People who delay receiving benefits beyond the age of 62 also will get inflation protection for each year they delay, Goss said. That's because the agency's annual cost of living adjustment will be applied to your PIA each year after you turn 62, whether you've begun taking benefits or not. The COLA is zero for 2010, and might even be zero in 2011 based on current inflation trends. But it will go up again in future years.
For couples, the timing of when to claim Social Security often is more complex. That's because the lower-earning spouse might be better off, at least for a few years, with spousal benefits than with benefits based on their own earnings history. Considerations about survivorship benefits also may influence a couple's claiming decisions. Social Security provides extensive online help. Your local area agency on aging also might be able to help advise you. Finally, the Center for Retirement Research at Boston College has a helpful Social Security Claiming Guide.
You can find your estimated primary insurance amount in the annual recap of benefits sent to you by the agency and called "Your Social Security Statement." Goss advised consumers to check the annual wage income figures listed on this statement, and compare them with their past W-2 statements and any self-employment earnings (Form 1099s). Roughly 1 percent of the wage forms don't have a correct match between the person and their Social Security number, Goss said. While the agency tries to eventually correct these problems, it doesn't find all the errors.
"Consumers Are Squeezed As Inflation Outpaces Wages: Wage Drop Sharpest Recorded Since 1990"
MARTIN CRUTSINGER, AP Economics Writer, January 15, 2010
WASHINGTON -- The spending power of families is being squeezed, government data showed Friday, highlighting doubts about consumers' ability to drive the economic rebound.
Workers saw their inflation-adjusted weekly wages fall 1.6 percent last year -- the sharpest drop since 1990 -- even as consumer prices rose only modestly. Slack pay and scarce job growth, along with tight credit and a rising savings rate, are holding back spending. That's hindering the recovery.
For some families, the overall inflation rate last year -- 2.7 percent -- understates their burden. Many are struggling with surging costs for health care and college tuition, both of which have been galloping far above the overall inflation rate.
Energy led consumer prices higher last year, offsetting the biggest drop in food costs in nearly a half century, the Labor Department said Friday. Core inflation, which excludes the volatile food and energy sectors, rose 1.8 percent. That's the second-smallest rise in four decades.
But to middle-class people like Angie and Larry Kimbrel of Birmingham, Ala., inflation feels anything but moderate. With three sons, the Kimbrels say they're just scraping by.
Angie Kimbrel, who works for an insurance underwriter, has gone without raises and bonuses and faces higher health insurance premiums. Work is slow for her husband, a painter, because of the sagging construction and housing markets.
"I haven't seen anything getting cheaper," said Kimbrel, 43. She's facing rising costs for health insurance and gas, in particular.
Economists expect core inflation to remain tame in 2010, giving the Federal Reserve leeway to keep interest rates at record lows to try to invigorate the economy. Inflation and wages remain low because employers can't or won't raise pay in an economy that's shed 7.2 million jobs since the recession began two years ago. The unemployment rate is 10 percent, and the number of jobless has hit 15.3 million, up from 7.7 million when the recession started in at the end of 2007.
The 1.6 percent drop in average weekly earnings for nonsupervisory workers was the worst yearly performance since a 2.5 percent fall in 1990. Inflation-adjusted pay has sunk in five of the past seven years, underscoring the pressures households felt even before the recession. (Unadjusted for inflation, weekly wages rose 1.9 percent last year.)
Over the past 10 years, for example, inflation-adjusted wages grew only about 13 percent -- the slowest pace in five decades, according to calculations made by Scott Hoyt of Moody's Economy.com. And that trend is expected to persist as long as the recovery remains weak and the job market tight.
"When people are unemployed and wages are weak, household spending is depressed and businesses don't have any pricing power," said Mark Zandi, chief economist at Moody's Economy.com. "That is the reason that inflation is not a problem."
The last period of strong wage gains occurred in the 1970s, when the country suffered double-digit inflation triggered by oil shocks. Many unions negotiated cost-of-living wage increases. To fight inflation, the Federal Reserve responded by aggressively raising interest rates, conquering inflation but leading to a severe recession in 1981-82.
Even though the Consumer Price Index rose 2.7 percent from December 2008 to December 2009, more than 50 million Social Security recipients got no cost-of-living benefit increase this year. That's because overall prices fell from July to September 2009 compared with the same months in 2008 -- the period the government uses to determine Social Security adjustments.
Even as wages, on average, have stagnated, Wall Street is one industry that's still handing out lavish pay raises. At JPMorgan Chase, for example, the average compensation per employee rose to $121,124 in 2009 from $101,110 a year earlier, the bank said Friday. The average compensation in the investment banking division was about $380,000.
While the 1.8 percent rise in core inflation was within the Fed's comfort zone, it masked the pain consumers felt in their pocketbooks because of the big jump in energy prices and other key items.
Energy prices for the 12 months ending in December 2009 shot up 18.2 percent. That was the biggest jump since 1979. Energy prices had dropped by 21.3 percent during the same period in 2008. The energy surge was led by higher gasoline costs, which rose 53.5 percent after falling 43.1 percent in 2008.
Food prices swung in the opposite direction. They fell 0.5 percent last year, the biggest drop since 1961.
Another factor that's limiting core inflation is housing costs. They dropped 0.3 percent for the 12 months ending in December. It was the sharpest annual decline on records dating to 1968. A glut of single-family homes on the market and record apartment vacancy rates have weighed down housing prices.
Medical costs rose by 3.4 percent in 2009, the biggest advance since a 5.2 percent increase in 2007. That continued a trend in which the costs of hospital visits, doctors and drugs are outpacing overall inflation. College tuition costs jumped by 6 percent in 2009 following a 5.8 percent rise in 2008. Over the past decade, college tuition and fees have soared 92 percent.
Theresa Bryan was in line Friday morning at Dunkin' Donuts in Haddon Township, N.J., for a cup of coffee. It's about the only indulgence she's allowing herself. She says she's been unable to shop for clothes, shoes or anything for her home for a couple years.
With two kids -- one in high school, one in college -- and a salary as a mortgage processor stalled for the past few years, she's felt no benefit from low inflation.
"I don't notice anything because I'm so broke," said Bryan, 50.
The CPI is calculated monthly, with Labor Department workers checking prices of hundreds of items at stores. The index reflects a market basket of goods such as food, autos and gasoline, which make up about 40 percent of the index. Services, such as hospital visits or haircuts, make up about 60 percent.
Economists caution that the economy can't sustain a strong recovery until wages and job creation strengthen. Business investment and exports driven by a low dollar will help, though.
David Wyss, an economist at Standard & Poor's in New York, said he expected inflation pressures to remain low through the middle of the decade, given the likelihood of a modest recovery with unemployment falling only slowly.
"You have to get back to full employment before inflation becomes a major problem," Wyss said.
Associated Press Writers Geoff Mulvihill in Haddon Township, N.J., and Jay Reeves in Birmingham, Ala., contributed to this report.
"Wages, benefits rise 1.5% in 2009: Small gains could affect recovery"
By Martin Crutsinger, Associated Press, January 30, 2010
WASHINGTON - Wages and benefits paid to workers posted a modest gain in the fourth quarter, ending a year in which recession-battered workers saw compensation rise by the smallest amount on records going back more than a quarter-century.
The anemic gains have raised concerns about the durability of the economic recovery. The fear is that consumer spending, which accounts for 70 percent of economic activity, could falter if households don’t have the income growth to support their spending.
The Labor Department said yesterday that wages and benefits rose by 0.5 percent in the three months ending in December. For the entire year, wages and benefits were up 1.5 percent, the weakest showing on records that go back to 1982.
The 1.5 percent increase in total compensation in 2009 was about half the 2.6 percent increase in 2008, and both years represented the smallest gains for the government’s Employment Compensation Index.
Last year, wages were up by just 1.5 percent and benefits rose by the same 1.5 percent, both record lows. In 2008, wages and salaries had been up 2.7 percent and benefits, which cover such things as health insurance and pension contributions, had risen by 2.2 percent.
The 0.5 percent rise in the fourth quarter for total compensation was slightly higher than the 0.4 percent advance economists had expected, and was the biggest quarterly gain since a 0.6 percent rise in the third quarter of 2008. Compensation had been up 0.4 percent in both the second and third quarters of this year.
Workers’ compensation has been battered by the deep recession as a loss of 7.2 million jobs over the past two years has depressed wage gains. A separate report from the Labor Department earlier this month showed that nonsupervisory workers’ inflation-adjusted weekly earnings fell by 1.6 percent last year, the sharpest drop since 1990.
"Social Security unfair to country’s seniors"
The Nashua Telegraph, Letters, January 15, 2010
I turned 65 in May 2009. Since I was receiving medical benefits from my employer, I only signed up for Medicare Part A at that time.
In October 2009, I applied for Medicare Part B and retirement benefits beginning in January 2009. Because I applied for both Medicare Part B and retirement benefits at the same time, Social Security went bonkers.
Social Security classified my Medicare Part B application as “futures.” Instead of sending my application to Medicare then, Social Security waited until after Jan. 1, 2010, to send my application to Medicare.
It is now Jan. 11, and I do not have my Medicare Part B identification card. Until I receive it, I cannot make any medical appointments since I can’t afford to pay for them.
To add insult to injury, Social Security is freezing retirement benefits for two years, while the premium for Medicare Part B went up 14.5 percent.
How on earth are seniors going to pay for Medicare increases without increases in retirement benefits?
Nashua, New Hampshire
"How on earth are seniors going to pay for Medicare increases without increases in retirement benefits"
How sad of you sir. I want mine. I want mine. Thats what you are saying. How do you think younger generations feel about there own healthcare increases? I got whacked with a 22% increase this year so you need to consider yourself lucky.
Still looking for a way to get out of the Social Security Ponzi scheme; give me my 15%, to invest as I choose tax-efficiently, and I'll sign away any claims against the program forever.
"southnh" in reply to "Genghis_Khan"
That solution would of done you just fine in 2008!!!!
"Genghis_Khan" in reply to "southnh"
If you are 55+ and still have your investments mostly in high-Beta stocks, you deserve what you get. And at 60 your portfolio should rapidly be shifting to lower-risk items like CDs... not as high a return, but consolidating your gains. Within 5 years of your anticipated retirement is the endgame where you settle down to low-gain, but steady income, investments.
It's called planning for the future, and taking care of yourself - - - not relying on someday sucking off the government's teat. Visualize Self-Reliance.
"southnh" in reply to "Genghis_Khan"
I can't disagree with that. Hopefully most people are doing that(sic). My comment was towards your wanting to privitize social security. I think its wrong and am very happy that Bush was defeated on this policy. You can do what you want with the social security, if his idea passed, and you may be very succesful. But most would not be and what would happen then when the 15% is gone?
"Genghis_Khan" in reply to "southnh"
The 15% is the SS tax I pay now.
I certainly agree that for those now on SS, privatization won't work - nor would it be right for people over, say 40 to fully do it. But I want to see SS phased out eventually, and money returned to the people who earn it, not taken from some to give to others.
Right now I already invest 10% of my salary into my 401(k) - with (G-d willing) 30 more years until I retire. Add in 15% MORE, and acting as a prudent person with a skin in the game, I'll do all right.
Keep your interventionist, socialist, government hands off my Social Security!!
"southnh" in reply to "commonwealth"
That's the attitude that will ruin it for the younger generations. I believe S.S. needs to be means teasted. If you make over a certian amout in pensions, savings, etc. You don't get it. Or need it for that matter. Also we need to raise the withholding from 97,500? to say 250K.
"Genghis_Khan" in reply to "southnh"
Means-tested? So, earn a good living, am prudent, save for my own retirement on my own dime... and STILL get taxed 15% to pay for those who didn't?
Incidentally, as I understand from reading, SS was originally intended to be just that - for the very poor, and limited in scope. But because it's such a nice rallying cry for progressives to scare elders and get votes, it's changed to a Ponzi-scheme government wealth transfer.
Sorry but my wife and i both read you letter not once, not twice, but three times, and we don't have a hint of what it is that you are trying to say.
I have been retired for eight years and my wife has been retired for six years and we both have part "A" & part "B" for coverage. We have both just enrolled into part" D " and have had no problem what-so-ever.
On April 13th 2009 I had my second cancer operation (lung-cancer) and can truly say we didn't have a problem about the Hospital or the Doctors. Everything was done on a timely basis.
The first time I had an operation for lung cancer was 16 years ago. At that time I had Co. ins. so to compare them, I have to say the only thing that we found to be a pain in the pocket was that of the medications.
It doesn't take many pills @ $100.00 each to grasp the reason for part "D" Did the pocket book take a hit yes and we have the canceled checks to prove it. However both my wife and i have made the best of it all .
Now, at this time of life as for me i am on my way to recovery and the pocket book is getting over the shock and life goes on.
Get all your information together and go to the office and get some solid answers. Good luck to you Sir.
Bring a person who can talk and make your issues clear to those in the office.
Mr. King, if you live in Nashua, I suggest that if you have not already gone to the SS office on Amherst Street, then you should do so. I am sure that they will do whatever they can about your SS and Medicare card.
When I applied for my SS benefits and Medicare, I could not have had more help and more interest in seeing to it that I got everything they felt I should get as I was taking from my late husband's SS for the most part. I have been to that office several times with questions, and find it hard to believe that you have had so much difficulty over something that seems so cut and dried. There must be some issue that you have not written in your letter, or you have misunderstood some part of the explanation.
As to an increase in retirement benefits, we got a 5.8% increase last year, the largest we have gotten since I can remember. Furthermore, our Medicare has not increased this year. We get a cost of living increase when there is a rise in costs overall. That has certainly not been the case for this year or even last year, so we did not receive nor deserve a COLA.
"jerryconner" in reply to "Sajwert"
I think Mr. King has misunderstood. My letter from SS says I can only apply for Medicare part B between Janurary and March (I'm not sure of the exact dates buy there is a window). I just received my application also but since we have insurance I'm opting out for another year. If you do this you must let them know or there is a 10% per year charge for waiting...at least that's the understanding I have. Just to be sure though, I'd call them. I also have found the people there to be very helpful.
"Seniors need, deserve economic relief"
The Berkshire Eagle, Letters, February 20, 2010
This year, more than one million Massachusetts residents who depend on Social Security will not receive an annual cost of living adjustment (COLA) as part of their benefit. In fact, it is likely that seniors will receive a reduced Social Security benefit because of rising Medicare Part D prescription drug plan premiums.
Since 1975, seniors have counted on the Social Security COLA to make ends meet. They need that help now more than ever.
While we are all struggling due to the tough economy, seniors are among the hardest hit. Most face reduced income today because of lost retirement savings and low interest rates. At the same time, their primary expenses are on the rise, as health care costs continue to skyrocket.
Low inflation triggered this year's lack of a Social Security cost of living adjustment. But, the general inflation rate just doesn't reflect reality for older Americans who spend the majority of their income on items not included in the calculation -- like prescription drugs, health care, gas, basic necessities.
AARP calls on Congress to help now. When the Massachusetts delegation -- including Sen. Kerry, Sen. Brown, and Rep. Olver -- returns to Washington after the President's Day recess, we urge them to provide seniors with $250 in immediate economic relief. This relief is a simple, direct way Congress can help seniors afford food, medicine and other basic necessities, while also injecting money directly into the economy.
DEBORAH E. BANDA
The writer is state director, AARP Massachusetts.
"Premiums jump on Medicare private plans"
By Ricardo Alonso-Zaldivar, Associated Press, February 21, 2010
WASHINGTON -- Millions of seniors who signed up for popular private health plans through Medicare are facing sharp premium increases this year -- another sign that spiraling costs are a problem even for those with solid insurance.
A study released Friday by a major consulting firm found that premiums for Medicare Advantage plans offering medical and prescription drug coverage jumped 14.2 percent on average in 2010, after an increase of only 5.2 percent the previous year. Some 8.5 million elderly and disabled Americans are in the plans, which provide more comprehensive coverage than traditional Medicare, often at lower cost.
Lee Durrwachter, a retired chemical engineer from Grand Marais, Michigan, said his premiums more than doubled this year -- even though he switched plans to try to save money.
"It doesn't bode well," Durrwachter said. "It's unaffordable."
The Medicare findings are bad news for President Barack Obama and his health care overhaul that is bogged down in Congress. That's because the higher Medicare Advantage premiums for 2010 followed a cut in government payments to the private plans last year. And the Democratic bills pending in Congress call for even more cuts, which are expected to force many seniors to drop out of what has been a rapidly growing alternative to traditional Medicare.
Republicans have seized on the Medicare Advantage cuts in their campaign to derail the health care bills, and seniors are listening. Polls show seniors are more skeptical of the legislation than the public as a whole, even though Democrats would also reinforce original Medicare by improving preventive benefits and narrowing the prescription coverage gap.
At a town hall meeting Friday outside Las Vegas, Obama said the Medicare Advantage plans are getting a "sweet deal" from the government -- overpayments averaging 13 percent.
"All we've been saying is ‘Let's make sure that there's a competitive bidding process, and that we are getting the absolute best bargain,"' the president said.
The Avalere study found that, for consumers, Medicare Advantage is becoming less of a bargain. The premium for 2010 is $39.61, representing an increase of nearly $5 a month from the previous year. That compares with a rise of less than $1.75 a month in 2009. The averages are adjusted based on enrollment levels in particular plans that offer medical and prescription coverage, reflecting the choices that seniors make.
"These premium increases fit within a broader trend of increased financial pressure on the insured," said Lindsey Spindle, a vice president of Avalere Health, a data analysis firm that produced the statistical study. "We see very large premium increases and a continued upward creep in how much out-of-pocket expenses beneficiaries are expected to pay, such as copayments."
Seniors who did not shop around for lower-priced coverage during open enrollment in the fall got hit with some of the biggest increases, averaging 22 percent.
Many Medicare recipients who remain in the traditional program -- about three-fourths of all seniors -- are also struggling with high premiums for supplemental insurance to cover their copayments and deductibles.
The report on Medicare comes after a series of double-digit premium increases around the country for privately insured working households who buy their own coverage. Obama has cited those increases as an argument for reviving his stalled health care overhaul plan.
Administration officials didn't dispute the Avalere study but sought to pin responsibility on the private insurers that participate in the program, a list that includes such industry giants as United Healthcare and Aetna. Nonpartisan technical advisers to Congress say Medicare Advantage plans are being overpaid because of a flawed formula.
"The plans need to explain why these increases are necessary," said Medicare spokesman Peter Ashkenaz.
Eric Hammelman, a senior Avalere data analyst, said that after the government cut payments to the plans last year, the insurers faced a choice. "They could raise premiums or lower benefits, and what most of them decided to do was raise premiums," he said.
An insurance industry spokesman said Medicare Advantage cuts in the Democratic health care bills will lead to higher premiums and reduced benefits. "That will put at risk the health security of seniors in the program, breaking the promise that those who like their coverage can keep it," said Robert Zirkelbach of America's Health Insurance Plans.
Avalere serves industry, government and private foundations, analyzing Medicare financial data.
"Senate rejects $250 checks for elderly"
March 4, 2010
WASHINGTON (Reuters) – A measure to give some 57 million elderly people, veterans and persons with disabilities a $250 check was rejected by the Senate on Wednesday, a setback for the powerful seniors' lobby.
President Barack Obama has called for Congress to approve the payments to make up for their benefits not increasing this year, but the Senate defeated it 50 to 47.
The payments would have added $13 billion to a $108 billion job-creation package pending in the Senate.
Congress approved payments last year as part of the $862 billion stimulus package.
Social Security payments for the elderly and disabled will stay flat this year for the first time since 1975 because they are tied to consumer prices, which decreased amid the worst economic recession in 70 years.
That follows a year in which payments rose by 5.8 percent, largely due to a spike in gasoline prices.
"It is wrong to turn our backs on seniors in this moment of economic difficulty," said Independent Senator Bernie Sanders, who sponsored the amendment.
But Republican Senator Judd Gregg pointed out that the bill would defeat the purpose of indexing Social Security payments to inflation.
"The law says it shouldn't be given," Gregg said.
At least 10 Democrats agreed with Gregg and joined 40 Republicans to defeat the proposal.
(Reporting by Andy Sullivan; Editing by Xavier Briand)
"The High Cost of Growing Older"
By Emily Brandon, U.S. News & World Report, March 8, 2010
No doubt, healthcare will be one of your biggest expenses in retirement. Qualifying for Medicare coverage at age 65 will quell some cost and coverage worries. But although Medicare is far more affordable than private health insurance coverage for seniors, the government health insurance program still leaves retirees with significant out-of-pocket costs.
Consider this: A typical 65-year-old married couple without chronic conditions will need $197,000 to pay for out-of-pocket medical costs throughout retirement, according to new calculations by the Center for Retirement Research at Boston College. That figure includes insurance premiums, services not covered by Medicare, and home healthcare expenses, but it excludes nursing-home care. Retirees also have a 5 percent chance that healthcare costs that are not covered by insurance will exceed $311,000, according to the study, which was underwritten by Prudential. "Regular ongoing out-of-pocket costs can really cumulate over the years," says Anthony Webb, associate director of research at the Center for Retirement Research at Boston College and coauthor of the study. "There is no substitute to having a lot of money stashed away."
Other researchers have come up with similarly large numbers. Fidelity Investments estimates that a couple, both age 65 in 2009, will need approximately $240,000 to cover medical expenses throughout retirement. And the Employee Benefit Research Institute determined that a 65-year-old couple in 2009 will need $210,000 to have a 50 percent chance of affording their retiree health expenses and $338,000 to have a 90 percent chance of being able to pay all their medical bills.
These eye-popping numbers are generally a tally of small expenses that add up throughout retirement. Here are the latest estimates of the health expenses most Americans will face.
Premium prices. Insurance premiums are the most predictable retirement health cost. "There's more certainty to paying a premium than there is to paying your own expenses out-of-pocket," says Paul Fronstin, a senior research associate at the Employee Benefit Research Institute. For most people retiring in 2010, the Medicare Part B monthly premium is $110.50 per month. That price is usually deducted from a beneficiary's Social Security check before it goes in the mail. Retirees who earn more than $85,000 annually ($170,000 for couples) pay higher premiums of up to $353.60 monthly. Medicare Part D prescription drug coverage premiums vary, depending on the plan and coverage level, typically averaging $30 per month. Many retirees also purchase supplemental insurance to Medicare such as Medigap policies or receive retiree coverage through a former employer, which come with additional premium prices.
Cost sharing. The amount you will pay for copays and coinsurance for medical treatment in retirement is much more difficult to estimate. Retirees without supplemental insurance must pay 20 percent of the bill (at Medicare negotiated rates) for physician and outpatient services after meeting a $155 deductible in 2010. "There is no out-of-pocket limit with Medicare," points out Sunit Patel, a senior vice president at Fidelity. "When you have no supplemental policy, you could have a lot of volatility from one year to the next." Long hospital stays are also not completely covered. For example, a Medicare Part A recipient without supplemental coverage who is admitted to the hospital will be billed a $1,100 deductible for 2010, up $32 from 2009. If the hospital stay is more than two months, beneficiaries must pay an additional $275 per day for days 61 through 90, $550 for days 91 to 150, and all costs after that. Above-average prescription drug use could further inflate retiree health expenses, especially if you reach the gap in prescription drug coverage known as the doughnut hole. Some prescription drug costs can be controlled by shopping around for the lowest cost Part D plan that meets your coverage needs annually.
Uncovered expenses. Retirees have some common medical needs that are not covered by Medicare. Dental care, eyeglasses, and hearing aids are among services seniors frequently require that Medicare does not pay for. Retirees need to budget for these expenses or consider a supplemental policy that covers them.
Long-term care. None of the above health expense estimates include the savings needed for long-term care. Medicare pays for a maximum of 100 days of nursing home care before retirees absorb the entire cost themselves. When nursing-home costs are included, the amount needed for a typical couple's medical bills increases from $197,000 to $260,000 with a 5 percent risk of exceeding $570,000, according to Boston College estimates. Long-term-care insurance can help protect retirees from some of these catastrophic costs, but at a hefty price. Fidelity Investments calculates that a couple, both age 65 in 2008, would need $85,000 to pay for long-term-care insurance throughout retirement. "Some people use it to protect their assets, to avoid spending their assets," says Fronstin. "Very low-income people don't need it because they will qualify for Medicaid."
Healthcare inflation. Future retirees are likely to spend far more of their budget on healthcare expenses than current retirees. For a couple planning to retire at age 65 in 2019, the lifetime healthcare cost estimates jump to $352,000 for a 50 percent chance and a whopping $567,000 for a 90 percent chance of being able to pay for Medicare Part B and D premiums, Medigap premiums, and out-of-pocket prescription drug expenses, EBRI found. "The number depends on how long you live, whether or not you get coverage to supplement Medicare, and how much costs and premiums go up," says Fronstin.
Median out-of-pocket costs for the typical senior are expected to rise from about $2,600 in 2010 to $6,200 in 2040 in constant 2008 dollars, according to a recent Urban Institute report. Retiree incomes, especially as traditional pension coverage continues to decline and workers fail to save enough in 401(k)'s, are unlikely to keep up. "Premiums are going to keep increasing for Medicare, Medigap, and employer-provided retiree health benefits and Social Security benefits won't be keeping up," says Richard Johnson, a senior fellow at the Urban Institute and coauthor of the study. "Seniors have to factor those likely cost increases into their budgeting." The Urban Institute estimates that seniors in 2040 will spend a median of 19 percent of their income on healthcare in 2040, up from 10 percent today.
FILE - In this Feb. 23, 2005 file photo, Susan Chapman, director of the Division of Federal Investments, sorts through paper securities pulled from a safe at the Treasury Department's Bureau of Public Debt offices in Parkersburg, W.Va. The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration. It's time to start cashing them in.
(AP Photo/Jeff Gentner, FILE)
"Social Security to start cashing Uncle Sam's IOUs"
By Stephen Ohlemacher, Associated Press Writer, March 14, 2010
PARKERSBURG, West Virginia – The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.
It's time to start cashing them in.
For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.
Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.
Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.
Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.
Social Security's shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program's finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there's concern that the looming crisis will lead to reduced benefits.
"This is not just a wake-up call, this is it. We're here," said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. "We are not going to be able to put it off any more."
For more than two decades, regardless of which political party was in power, Congress has been accused of raiding the Social Security trust funds to pay for other programs, masking the size of the budget deficit.
Remember Al Gore's "lockbox," the one he was going to use to protect Social Security? The former vice president talked about it so much during the 2000 presidential campaign that he was parodied on "Saturday Night Live."
Gore lost the election and never got his lockbox. But to illustrate the government's commitment to repaying Social Security, the Treasury Department has been issuing special bonds that earn interest for the retirement program. The bonds are unique because they are actually printed on paper, while other government bonds exist only in electronic form.
They are stored in a three-ring binder, locked in the bottom drawer of a white metal filing cabinet in the Parkersburg offices of Bureau of Public Debt. The agency, which is part of the Treasury Department, opened offices in Parkersburg in the 1950s as part of a plan to locate important government functions away from Washington, D.C., in case of an attack during the Cold War.
One bond is worth a little more than $15.1 billion and another is valued at just under $10.7 billion. In all, the agency has about $2.5 trillion in bonds, all backed by the full faith and credit of the U.S. government. But don't bother trying to steal them; they're nonnegotiable, which means they are worthless on the open market.
More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.
Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers' earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.
Social Security's financial problems have been looming for years as the nation's 78 million baby boomers approached retirement age. The oldest are already there. As that huge group of people starts collecting benefits — and stops paying payroll taxes — Social Security's trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program.
The recession is making things worse, at least in the short term. Tax receipts are down from the loss of more than 8 million jobs, and applications for early retirement benefits have spiked from older workers who were laid off and forced to retire.
Stephen C. Goss, chief actuary for the Social Security Administration, says the crisis has been years in the making. "If this helps get people to look more seriously at that in the nearer term, that's probably a good thing. But it's only really a punctuation mark on the fact that we have longer-term financial issues that need to be addressed."
In the short term, the nonpartisan Congressional Budget Office projects that Social Security will continue to pay out more in benefits than it collects in taxes for the next three years. It is projected to post small surpluses of $6 billion each in 2014 and 2015, before returning to indefinite deficits in 2016.
For the budget year that ends in September, Social Security is projected to collect $677 billion in taxes and spend $706 billion on benefits and expenses.
Social Security will also collect about $120 billion in interest on the trust funds, according to the CBO projections, meaning its overall balance sheet will continue to grow. The interest, however, is paid by the government, adding even more to the budget deficit.
While Congress must shore up the program, action is unlikely this year, said Rep. Earl Pomeroy, D-N.D., who just took over last week as chairman of the House subcommittee that oversees Social Security.
"The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don't need to be done in the next few months," Pomeroy said.
The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military. About $2.5 trillion is owed to Social Security.
Good luck to the politician who reneges on that debt, said Barbara Kennelly, a former Democratic congresswoman from Connecticut who is now president of the National Committee to Preserve Social Security and Medicare.
"Those bonds are protected by the full faith and credit of the United States of America," Kennelly said. "They're as solid as what we owe China and Japan."
On the Net:
Social Security Administration: www.socialsecurity.gov
Trustees' reports: www.ssa.gov/OACT/TR/
National Committee to Preserve Social Security and Medicare: www.ncpssm.org
The Senior Citizens League: www.seniorsleague.org
Bureau of Public Debt: www.publicdebt.treas.gov
Congressional Budget Office: www.cbo.gov/publications/collections/collections.cfm?collect=5
"The coming inflation wave"
By Daryl G. Jones, FORTUNE via CNNMoney.com - March 31, 2010
(Fortune) -- Whether the American economy is in an inflationary or deflationary environment sounds like it should be a fundamental and settled question. But due to the unprecedented financial crisis, the answer is actually subject to intense debate among economists.
Making economic projections is far from a scientific process, so it's not surprising to find valid arguments on both sides of the divide. The economists who are right will help investors drive returns over the next three years.
Inflation can be a positive or negative, depending on the level and duration of it in our economy. The main negative associated with inflation is a drop in purchasing power of money, and therefore, consumers. In extreme cases, consumers may actually start hoarding if they fear continued and aggressive price increases. The positive side of inflation is to decrease the real value of debt, or essentially provide debt relief.
How do we measure the level and duration of inflation, to know whether it will help or hurt? In basic terms, inflation is a rise in prices of basic goods and services over a given period of time. In the United States, the government generally tracks inflation using the Consumer Price Index, or CPI.
Besides measuring inflation, CPI is also used to set income rates for more than 80 million people on entitlement programs. 48 million people on social security, 22 million food stamp recipients, and 4 million civil service retirees, have benefits tied to the CPI.
When inflation increases, so do their benefits. These payments are among the largest non-defense obligations in the federal budget. Not surprisingly, then, the government tends to understate inflation and has changed the way the CPI is calculated nine times since 1996.
Another common inflation metric is the Federal Reserve's core inflation, which it uses to measure overall inflation. The Fed excludes food and energy prices to smooth out short-term volatility. However, based on government data, food and energy purchases make up 36% of the average consumer's budget. The Fed's inflation graph might look nice and smooth, but it's probably not the best indicator for how your wallet feels when paying bills or buying groceries.
So, conventional measures of inflation are imperfect at best. Which may embolden economists who dispute the idea that we are in an inflationary environment. They argue that our economy is too slack to be inflationary.
With a 9.7% February unemployment rate (the worst for February since 1983) and capacity utilization is at 72.7% (7.9 percentage below the average from 1972 to 2009), the thinking is, what's there to inflate? If employment and utilization of industry are low, then so are supply and demand which help set pricing levels. How, then, can prices possibly inflate?
Despite this argument, and primarily due to aggressively accommodative monetary policy in the United States and around the globe, we believe inflation is here, and poised to accelerate as all the slack in global economies begins to tighten. Measures of inflation for major nations around the globe give support to our conclusions: most of the G20 nations are reporting higher than normal inflation rates.
While we take some issue with the U.S. government's calculation of inflation, even federal economists have reported inflating prices this year. The January CPI came in at 2.6% and February reported at 2.1%. We expect March figures to accelerate even further.
The U.S. treasury and currency markets have also showed inflation signs for months, with the dollar up and the price of treasury bonds down. Also, as we recently noted to our clients, fixed versus floating interest rate swaps have turned negative for the first time in over a decade.
This means investors are aggressively betting that floating interest rates will increase, because the Fed, as it becomes more concerned about inflation, tends to raise interest rates to try and slow it down.
Back in the treasury market, 30-year treasuries have gone from yielding 3.73% to yielding 4.72% over the last year. That increase has happened for shorter-term treasuries -- the short end of the yield curve -- as well. And all these increases have happened despite the fact the Fed has maintained its target rate at 0 -- 0.25%. Bond yields, in other words, are already accounting for inflation.
Finally, in the chart at the top of this page, we've plotted the Journal of Commerce Industrial Price Index over the last year. This index charts the price of key commodities that are used in industrial production. The chart is up and to the right, screaming inflation. Commodity inflation will likely lead China to report its first trade deficit in March in 6 years!
As they say, the markets don't lie, people do (or government statistics as the case may be). Based on the evidence above, we're sticking with our inflation call -- until the markets, and the data, tell us different.
Daryl G. Jones is the Managing Director of Risk Management at Hedgeye, a research firm based in New Haven, Conn. His colleagues Darius Dale and Matt Hedrick also contributed to this column.
From: "Nita Chaudhary, MoveOn.org Political Action"
To: Jonathan A. Melle
Subject: Alert: Social security cuts coming - Social Security is under attack again—and the Democrats aren't doing enough to save it. We're starting a campaign to defend Social Security and create a progressive economy.
Date: June 14, 2010
Dear MoveOn member,
It sounds like something Glenn Beck would cook up: a powerful cabal of right-wing ideologues hatches a secret plan to force cuts to Social Security and Medicare, and they're on the verge of succeeding(1). But it's true.
Right now, the stars are aligned for conservatives who've spent decades trying to cut Social Security—the heart of the New Deal. They're focusing public anxiety over the economy on the deficit—and even though the deficit is almost entirely a result of Bush cutting taxes for the rich while waging two wars, the "deficit hawks" want us to cut the programs vulnerable Americans rely on to survive—Social Security and Medicare(2).
And instead of articulating a progressive response, Democrats seem frozen, like deer in the headlights.
Against this backdrop, the President has appointed a "deficit commission" stacked with deficit hawks. Right after the election Congress will vote on the commission's recommendations.
Right now, this threat isn't even on most of our radar screens. So we have a special request: will you help us fund a major campaign to keep this from happening? We'll use every tool at our disposal, and the combined voices of 5 million MoveOn members, to demand that Congress deal with the deficit the right way—by helping the middle class get back on their feet and making Wall Street pay its fair share. And we'll show wavering politicians that cutting Social Security will cost them at home.
To do it, we need to raise $185,000.
Why does the deficit commission pose such a threat? Because almost all of its members have interests in seeing cuts to Social Security, Medicare and other safety net programs.
Here's an introduction to some of the folks on the Commission that we're up against (3):
Erskine Bowles, Co-Chair: An investment-banking millionaire who now sits on the Board of Directors for Morgan Stanley and General Motors. Bowles was Chief of Staff for Bill Clinton, where he was called "Corporate America's Friend in the White House" as he negotiated with Newt Gingrich for how best to cut safety net programs.
Alan Simpson, Co-Chair: A GOP power player during the Conservative movement's heyday, he led Clinton-era attacks on Social Security and is already crusading publicly for cuts to Social Security and Medicare to address the deficit.
David M. Cote: CEO of Honeywell, a defense contractor making millions from the Department of Defense and responsible for costing us millions of dollars in misconduct—including failing to test bulletproof vests sent to US troops(4).
And they're just the tip of the iceberg.
We're planning a full-court press. Washington has to hear the stories of the real people who will be hurt by cuts. We'll run ads and organize in home districts of members of Congress considering cuts, work with progressive policy experts to push real solutions, and respond to the conservative propaganda wherever we can.
But we need to get started. Can you chip in $5 to make it crystal clear to lawmakers how the American people feel about Social Security cuts?
Thanks for all you do.
–Nita, Daniel, Duncan, Amy, Stephen, and the rest of the team
1. Obama's Deficit Commission: No Friend Of Social Security? Campaign for America's Future, April 2, 2010
2. "Whacking the Old Folks," The Nation, June 7, 2010
3. "Obama Packs Debt Commission with Social Security Looters," AlterNet, March 28, 2010
4. "U.S. sues Honeywell over bullet-proof vests," Reuters, June 5, 2008
Want to support our work? We're entirely funded by our 5 million members—no corporate contributions, no big checks from CEOs. And our tiny staff ensures that small contributions go a long way. Chip in here.
PAID FOR BY MOVEON.ORG POLITICAL ACTION, http://pol.moveon.org/. Not authorized by any candidate or candidate's committee. This email was sent to Jonathan A. Melle on June 14, 2010.
From: "Nita Chaudhary, MoveOn.org Political Action"
To: Jonathan A. Melle
Re: Top 5 Social Security Myths
Date: Thursday, July 29, 2010
Social Security is under attack and we need to fight back against the lies.
Have you heard that Social Security is going bankrupt? Driving up the deficit? In crisis?
Well none of that is true. These are all myths that opponents of Social Security have been spreading to scare people into accepting benefit cuts this fall. But the myths are taking hold—so we have to fight back with the facts.
So we've put together a list of the top five myths about Social Security, along with the real story. Can you check out the list and then share it with your friends, family, and coworkers?
Share the list by going to http://pol.moveon.org/ssmyths?id=22141-1614108-AgAjjux&t=1 If you're on Facebook, share it by clicking here. If you're on Twitter, tweet it here.
Top 5 Social Security Myths
Myth #1: Social Security is going broke.
Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.6 trillion surplus (yes, trillion with a 'T'). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever.1 After 2037, it'll still be able to pay out 75% of scheduled benefits—and again, that's without any changes. The program started preparing for the Baby Boomers' retirement decades ago.2 Anyone who insists Social Security is broke probably wants to break it themselves.
Myth #2: We have to raise the retirement age because people are living longer.
Reality: This is a red-herring to trick you into agreeing to benefit cuts. Retirees are living about the same amount of time as they were in the 1930s. The reason average life expectancy is higher is mostly because many fewer people die as children than they did 70 years ago.3 What's more, what gains there have been are distributed very unevenly—since 1972, life expectancy increased by 6.5 years for workers in the top half of the income brackets, but by less than 2 years for those in the bottom half.4 But those intent on cutting Social Security love this argument because raising the retirement age is the same as an across-the-board benefit cut.
Myth #3: Benefit cuts are the only way to fix Social Security.
Reality: Social Security doesn't need to be fixed. But if we want to strengthen it, here's a better way: Make the rich pay their fair share. If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come.5 Right now, high earners only pay Social Security taxes on the first $106,000 of their income.6 But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.
Myth #4: The Social Security Trust Fund has been raided and is full of IOUs
Reality: Not even close to true. The Social Security Trust Fund isn't full of IOUs, it's full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States.7 The reason Social Security holds only treasury bonds is the same reason many Americans do: The federal government has never missed a single interest payment on its debts. President Bush wanted to put Social Security funds in the stock market—which would have been disastrous—but luckily, he failed. So the trillions of dollars in the Social Security Trust Fund, which are separate from the regular budget, are as safe as can be.
Myth #5: Social Security adds to the deficit
Reality: It's not just wrong—it's impossible! By law, Social Security's funds are separate from the budget, and it must pay its own way. That means that Social Security can't add one penny to the deficit.8
Defeating these myths is the first step to stopping Social Security cuts. Can you share this list now?
Thanks for all you do.
–Nita, Duncan, Daniel, Kat, and the rest of the team
1."To Deficit Hawks: We the People Know Best on Social Security," New Deal 2.0, June 14, 2010
2. "The Straight Facts on Social Security," Economic Opportunity Institute, September 2009
3. "Social Security and the Age of Retirement," Center for Economic and Policy Research, June 2010
4. "More on raising the retirement age," Washington Post, July 8, 2010
5. "Social Security is sustainable," Economic and Policy Institute, May 27, 2010
6. "Maximum wage contribution and the amount for a credit in 2010," Social Security Administration, April 23, 2010
7. "Trust Fund FAQs," Social Security Administration, February 18, 2010
8."To Deficit Hawks: We the People Know Best on Social Security," New Deal 2.0, June 14, 2010
"Govt: No call for Social Security increase in 2011"
By Stephen Ohlemacher, Associated Press Writer, October 10, 2010
WASHINGTON – As if voters don't have enough to be angry about this election year, the government is expected to announce this week that more than 58 million Social Security recipients will go through another year without an increase in their monthly benefits.
It would mark only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.
"If you're the ruling party, this is not the sort of thing you want to have happening two weeks before an election," said Andrew Biggs, a former deputy commissioner at the Social Security Administration and now a resident scholar at the American Enterprise Institute.
"It's not the congressional Democrats' fault, but that's the way politics works," Biggs said. "A lot of people will feel hostile about it."
The cost-of-living adjustments, or COLAs, are automatically set each year by an inflation measure that was adopted by Congress back in the 1970s. Based on inflation so far this year, the trustees who oversee Social Security project there will be no COLA for 2011.
The projection will be made official on Friday, when the Bureau of Labor Statistics releases inflation estimates for September. The timing couldn't be worse for Democrats as they approach an election in which they are in danger of losing their House majority, and possibly their Senate majority as well.
This past Friday, the same bureau delivered another painful blow to Democrats: The U.S. lost 95,000 jobs in September and unemployment remained stubbornly stuck at 9.6 percent.
Democrats have been working hard to make Social Security an election-year issue, running political ads and holding press conferences to accuse Republicans of plotting to privatize the national retirement program.
This week's announcement about Social Security benefits raises more immediate concerns for older Americans whose savings and home values still haven't recovered from the financial collapse: Many haven't had a raise since January 2009, and they won't be getting one until at least January 2012.
"While people aren't getting COLAs they certainly feel like they're falling further and further behind, particularly in this economy," said David Certner, AARP's legislative policy director. "People are very reliant on Social Security as a major portion of their income and, quite frankly, they have counted on the COLA over the years."
Social Security was the primary source of income for 64 percent of retirees who got benefits in 2008, according to the Social Security Administration. A third relied on Social Security for at least 90 percent of their income.
A little more than 58.7 million people receive Social Security or Supplemental Security Income. The average Social Security benefit is about $1,072 a month.
Social Security recipients got a one-time bonus payment of $250 in the spring of 2009 as part of the government's massive economic recovery package. President Barack Obama lobbied for another one last fall when it became clear seniors wouldn't get an increase in monthly benefit payments in 2010.
Congress took up the issue, but a proposal by Sen. Bernie Sanders died when 12 Democrats and independent Sen. Joe Lieberman of Connecticut joined Senate Republicans to block it. Sen. Olympia Snowe of Maine was the only Republican to support the second bonus payment.
Sanders, I-Vt., said he expects older voters to be angry when they learn there will be no increase for the second straight year.
"I do think there's going to be political fallout," Sanders said. "Many seniors who are spending a lot of money on health care and prescription drugs really are going to find it hard to believe that there has been no inflationary costs to their purchasing needs."
Federal law requires the Social Security Administration to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers, which measures inflation. Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.
If inflation increases from year to year, Social Security recipients automatically get higher payments, starting in January. If inflation is negative, the payments stay unchanged.
Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008.
But energy prices quickly dropped. For example, average gasoline prices topped $4 a gallon in the summer of 2008. But by January 2009, they had fallen below $2. Today, the national average is roughly $2.70 a gallon.
As a result, Social Security recipients got an increase in 2009 that was far larger than actual inflation. However, they won't get another increase until inflation exceeds the level measured in 2008. The Social Security trustees project that will happen next year, resulting in a small increase in benefits for 2012.
Social Security spokesman Mark Lassiter said the agency has no leeway to increase payments if the inflation measurement doesn't call for it.
Rep. Earl Pomeroy, D-N.D., chairman of the Ways and Means subcommittee on Social Security, has introduced a new bill to provide $250 payments to seniors, if there is no increase in Social Security. Maybe, he said, there will be more of an appetite in Congress to pass it after lawmakers hear from voters in November.
"Costs of living are inevitably going up, regardless of what that formula says," Pomeroy said. "Seniors in particular have items such as uncovered drug costs, medical costs, utility increases, and they're on fixed incomes."
Online: Social Security COLAs: www.ssa.gov/OACT/cola/latestCOLA.html
"The numbers on who gets Social Security benefits"
By The Associated Press, October 10, 2010
The Social Security Administration is expected to announce on Friday that retirees and disabled Americans will see no increase in benefits for 2011, the second straight year without an increase.
A look at who gets benefits:
-- Total beneficiaries: 58.7 million.
-- Social Security recipients: 53.5 million
-- Supplemental Security Income recipients: 7.9 million.
-- People who get both Social Security and SSI: 2.7 million.
-- Average monthly Social Security payment: $1,072.
-- Average monthly SSI payment: $499.
-- Social Security is the primary source of income for 64 percent of recipients.
-- One-third of recipients rely on Social Security for at least 90 percent of their income.
-- Early retirement age: 62.
-- Full retirement age: 66, rising to 67 for people born after 1959.
Source: Social Security Administration.
"Hope dims for Social Security accord: Democrats block cuts, Republicans oppose tax hike"
By Stephen Ohlemacher, Associated Press, August 12, 2010
WASHINGTON — Prospects are bleak for fixing Social Security’s financial problems as the government retirement insurance program celebrates its 75th anniversary this week.
Many Democrats adamantly oppose any cut in benefits to reduce cost and some will not accept a gradual increase in the retirement age, something that was done in the last overhaul in 1983. Republicans say an increase in Social Security taxes is out of the question, even for the wealthy.
Unless Congress acts, Social Security’s combined retirement and disability trust funds are expected to run out of money in 2037. At that point, Social Security will collect enough in payroll taxes to cover about three-fourths of the benefits.
The rhetoric is creating a tough environment for President Obama’s bipartisan fiscal commission to come up with recommendations to improve the government’s troubled finances. Obama says everything should be on the table, and the commission’s cochairmen — a Republican and a Democrat — have asked for civil discourse.
Social Security has been potentially deadly for the career of any politician who dares touch it.
While Obama’s commission was holding its latest meeting, dozens of House Democrats gathered on the steps of the Capitol to accuse Republicans of trying to wreck Social Security by creating private accounts, an idea with little support in Congress since former President George W. Bush unsuccessfully tried it.
“Probably the months before an election are not the time to try to negotiate Social Security,’’ said John Rother, executive vice president of AARP.
The commission’s proposals are due in December, after congressional elections in November.
Despite the rhetoric, many analysts think policymakers will eventually settle on a compromise: small cuts in future benefits coupled with small tax increases.
“You could put 10 moderates in a room and they could come up with a package in a day that solved the long-term problem and combined tax increases and spending cuts,’’ said William Gale, an adviser to President George H.W. Bush’s Council of Economic Advisers and now codirector of the Tax Policy Center. “It’s not that hard to do.’’
Social Security’s short-term finances are being hurt by a recession that shed more than 8 million jobs, reducing revenue from the payroll taxes that support the program. Social Security’s long-term finances will be strained as the 78 million baby boomers reach retirement age — and live longer as life expectancy increases.
For the first time since the 1980s, Social Security is paying out more money in benefits than it collects in payroll taxes. The program is projected to post surpluses again in 2012 through 2014 but will return to permanent deficits in 2015, its trustees said in their annual report last week.
The disability program is in even worse shape. The disability trust fund is projected to be exhausted by 2018, meaning Congress will have to act soon to address it.
The combined trust funds have built up a $2.5 trillion surplus over the past 25 years. But the federal government has borrowed that money over the years to spend on other programs. The government must now start borrowing money from public debt markets — adding to the federal budget deficit — to repay Social Security.
Over the next decade, the federal government will pay Social Security more than $1.5 trillion in interest, though the transfers are essentially an accounting procedure, switching money from one government account to another.
President Franklin D. Roosevelt signed the Social Security Act into law on Aug. 14, 1935. This year, more than 53 million people receive a total of $700 billion in benefits. Retirement benefits average $1,100 a month and disabled workers get an average of $1,065.
"COLA decision is not Obama's"
The Berkshire Eagle, Letter to the Editor, October 25, 2010
In a letter to the editor on Oct. 20, Thomas Gilardi voices his complaint that because of the current administration the Social Security cost of living raise will not be given in 2011. The fact of the matter is that President Nixon (R) signed this into law on July 1, 1972, and stated the following: "This provision is one which I have long urged, and I am pleased that the Congress has at last fulfilled a request which I have been making since the first months of my administration."
By law this COLA is triggered by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It is unfair to attach blame to any one administration, as the residual effects of the previous administration's policies may also factor into this equation.
CHESTER L. ZAORSKI JR.
"Medicare rise could mean no Social Security COLA"
By STEPHEN OHLEMACHER, Associated Press, March 27, 2011
WASHINGTON – Millions of retired and disabled people in the United States had better brace for another year with no increase in Social Security payments.
The government is projecting a slight cost-of-living adjustment for Social Security benefits next year, the first increase since 2009. But for most beneficiaries, rising Medicare premiums threaten to wipe out any increase in payments, leaving them without a raise for a third straight year.
About 45 million people — one in seven in the country — receive both Medicare and Social Security. By law, beneficiaries have their Medicare Part B premiums, which cover doctor visits, deducted from their Social Security payments each month.
When Medicare premiums rise more than Social Security payments, millions of people living on fixed incomes don't get raises. On the other hand, most don't get pay cuts, either, because a hold-harmless provision prevents higher Part B premiums from reducing Social Security payments for most people.
David Certner of AARP estimates that as many as three-fourths of beneficiaries will have their entire Social Security increase swallowed by rising Medicare premiums next year.
It's a tough development for retirees who lost much of their savings when the stock market collapsed, who lost value in their homes when the housing market crashed and who can't find work because the job market is weak or they are in poor health.
"You just don't have the words to say how much this impacts a person," said Joyce Trebilcock, a retired legal secretary from Belle, Mo., a small town about 100 miles west of St. Louis.
Like most U.S. retirees, Trebilcock, 65, said Social Security is her primary source of income. She said a back injury about 15 years ago left her unable to work, so she applied for disability benefits. Now, she lives on a $1,262 Social Security payment each month, with more than $500 going to pay the mortgage.
"I've cut back on about everything I can, and I take the rest out of my savings," Trebilcock said. "Thank God I've got that. That's going to run out before long, at the rate I'm going. ... I have no idea what I'm going to do then."
Medicare premiums are absorbing a growing share of Social Security benefits, leaving retired and disabled people with less money for other expenses, according to a report by the Congressional Research Service.
Social Security recipients spend, on average, 9 percent of their benefits on Medicare Part B premiums, plus 3 percent on premiums for the Medicare prescription drug program. By 2078, people just retiring would spend nearly one-third of their benefits on premiums for both Medicare programs, the report said. Also, when premiums for the prescription drug program increase, as they do almost every year, they can result in a pay cut for Social Security recipients.
"We could very well be entering a period where we're all stuck with flat benefits because of the growth in health care costs," said Mary Johnson, a policy analyst at The Senior Citizens League.
By law, Social Security cost-of-living adjustments, or COLAs, are determined each year by a government measure of inflation. When consumer prices go up, payments go up. When consumer prices fall, payments stay flat until prices rebound.
There had been a COLA every year from 1975 through 2009, when a spike in energy prices resulted in a 5.8 percent increase, the largest in 27 years. Since then, the recession has depressed consumer prices, resulting in no COLA in 2010 or 2011.
Older people might feel they are falling behind because they haven't had a raise since 2009, but many are benefiting, said Andrew Biggs, a former deputy commissioner of the Social Security Administration who is now a resident scholar at the American Enterprise Institute.
Consumer prices dropped, but Social Security benefits didn't drop, Biggs said. At the same time, health care costs went up, but Part B premiums stayed the same for most beneficiaries.
"They are better off because of that," Biggs said. "Somebody else is paying for a greater share of their health care. This will get me hate mail, obviously. But it is what it is."
Next year, the trustees who oversee the Social Security project a 1.2 percent COLA. President Barack Obama, in his spending proposal for the budget year that begins Oct. 1, projects a COLA of 0.9 percent. The average monthly payment is $1,077, so either way, the typical increase is projected to be between $10 and $13.
The current spike in energy prices could boost next year's COLA, if it lasts through September, when the increase for 2012 will be calculated. The COLA will be announced in mid-October.
Medicare Part B premiums must be set each year to cover 25 percent of program costs. By law, they have been frozen at 2009 levels for about 75 percent of beneficiaries because there has been no increase in Social Security. That means the entire premium hike has been borne by the remaining 25 percent, which includes new enrollees, high-income families and low-income beneficiaries who have their premiums paid by Medicaid, the federal-state health care program for the poor.
The 2009 premium levels, which are still paid by about three-fourths of beneficiaries, are $96.40 a month. Most of those who enrolled in the program in 2010 pay $110.50 a month and most of those who enrolled in 2011 pay $115.40.
The Medicare trustees project a Part B premium of $113.80 a month for next year. Obama's budget projects a monthly premium of $108.20, said Donald McLeod, a spokesman for the Centers for Medicare and Medicaid Services. McLeod cautioned that the projections could change significantly by September, when 2012 premiums are calculated.
Under either projection, a small share of beneficiaries would get lower premiums. The vast majority would get higher premiums that could swallow their Social Security COLA.
"That little raise helps us," said Estelle Jones, 66, of St. Paul, Minn. "Food, heating bills, water bill, all that stuff has gone up. ... All my medicines are very expensive, and every month I have to figure out how I am going to pay for them."
"Why Social Security must change now"
By the Christian Science Monitor's Editorial board, March 30, 2011
Don’t mess with Social Security. That was the clear message of Senate majority leader Harry Reid and other Democrats when they staged a rally on Capitol Hill on Monday. But Congress must mess with it in order to save this bedrock program and help head off a looming debt crisis.
A group of bipartisan lawmakers in the Senate is looking at Medicare, Medicaid, and, yes, Social Security, as federal entitlements that must be reformed in order to confront the nation’s building debt problem. House Republicans, too, say the nation’s retirement program can’t be exempt from change.
But Senator Reid is digging in his heels: “Let’s look at Social Security when it’s a problem; today it’s not a problem.” He and others point to the program’s $2.6 trillion trust fund, which is not expected to run out until 2037, at which point benefits will be reduced by 30 percent. The program is neither a debt threat today, nor a deficit buster, defenders argue.
It must be underscored that Social Security is an effective antipoverty program. Millions of Americans, especially low-income seniors, depend on these checks. The program needs to be protected.
Admittedly, the outlook for Social Security is not as dire as for Medicare, the health benefit for seniors. Medicare’s costs are expected to explode along with retiring baby boomers and skyrocketing health costs. The growth of Social Security and Medicaid, which serves the poor, looks more like a gentle rise over the next 60 years.
But just because Social Security is less of a fiscal threat than Medicare doesn’t mean it’s of no concern, or that reforming it should be put off.
Lawmakers had to shore up the 76-year-old program in 1983. For the first time since that repair job, Social Security is running at a deficit â€“ an estimated $41 billion in 2010. That means that revenues from FICA taxes did not cover benefits paid to recipients.
The deficit drain has begun. Demographics will only make it worse. In 2037, when the trust fund is exhausted, the projected deficit is $329 billion.
As for that fat trust fund, it’s filled with special government bonds that are effectively IOUs. Over the years, the fund has bankrolled other government spending, and what’s in the “lock box” are merely promises to pay.
One can argue, as those who think everything is fine do, that the trust fund bonds have the full backing of the US government. But that does not change the fact that redeeming them will require the government to borrow, tax, or cut, even as the nationâ€™s fiscal health deteriorates.
The encouraging thing is that Social Security is much easier to fix than Medicare – although politically it’s just as hard because of its popularity. The correction is a matter of solving the demographic equation; whereas bringing Medicare under control means getting on top of rising medical costs, whose causes are multiple and complex.
A number of modest solutions have been put forth to repair Social Security, including several by President Obama’s bipartisan commission on deficit and debt reduction.
The commission’s report – supported by a majority but not all of its members – suggested gradually raising the retirement age to 69 by 2075 to account for longer life spans. This would not affect current seniors.
The report also recommended that the most fortunate Americans should contribute more and receive less. It pointed to the need to actually strengthen support for low-income recipients.
Now is the right time to face Social Security’s weaknesses. Americans want Congress to get serious about the debt, which includes today’s crisis and the even bigger one that’s coming as the population ages. Retirees deserve a sound Social Security system.
Meanwhile, the debt debacle in Europe shows how quickly financial markets can frown on overspending. Making progress on entitlements now, including Social Security, would send a signal to the markets that the government is taking steps to get its fiscal house in order, just as its citizens have been.
“Unless we act ... immense demographic changes will bring the Social Security program to its knees,” the president’s commission wrote last year. That’s the cry to heed. Not Senator Reid’s appeal to do nothing.
"Amending Social Security: how to's surface during national debt talks"
Obama put Social Security on the table as part of his bid to resolve the national debt crisis. He hasn't specified what the changes might entail, and Democrats in Congress oppose any cut in benefits. But the talks signify that politicians know reforms must come, eventually, to keep Social Security solvent.
By Mark Trumbull, Christian Science Monitor, July 18, 2011
Even if Social Security ends up untouched after the current round of wrangling over federal finances, the bipartisan negotiations have put Americans on notice: Even the most sacrosanct of federal programs is coming up for review and, before long, changes.
In his recent bid for a "grand bargain" to control future federal budget deficits and the national debt, President Obama put Social Security on the table, along with just about everything else.
With many of Mr. Obama's fellow Democrats set firmly against any reduction in entitlement benefits, and most Republicans stridently opposed to the tax increases that the president sees as a vital part of such a bargain, the idea to "go big" has proved extraordinarily difficult.
Such a package would deprive each party of a key talking point for the next election – the ability to stand as the party that "won't raise taxes" or the one that "won't cut Social Security" or Medicare.
But Obama's push to consider entitlement reform reflects a reality that Americans also recognize. Social Security needs to change if it is to remain solvent for future generations. And the urgency is rising. Already the program is paying out more in benefits than it draws in revenue – a pattern with no end in sight.
The battle over Social Security is distinct: It's the most popular of federal programs and the bedrock of retirement security for the typical household.
Political third rail
For that reason, Social Security has long been viewed by politicians in both parties as the quintessential "third rail" issue, something touched only at grave political risk.
Amid Obama's efforts at attaining the grand bargain, rumors spread that Social Security might be altered by scaling back the cost of living adjustment (COLA) by which senior incomes are adjusted for inflation. That idea stirred an immediate firestorm from advocacy groups that see it as a backdoor cut in benefits.
To call such a change controversial is an understatement. Many seniors, after two years in which the COLA formula left benefits static, already worry that their incomes don't keep pace with rising prices.
The news media, meanwhile, immediately put Obama in the hot seat: He had promised in his State of the Union message not to "slash" Social Security. So was there a difference in Obama's mind between "slash" and "cut"? In a July 7 briefing, a reporter pushed at length for White House press secretary Jay Carney to clarify the possible semantic nuance.
Social Security has captured headlines lately for another reason as well: If the two sides don't reach a deal and the cap on federal borrowing is not raised, Obama raised the prospect in a July 12 statement that the government might not be able to pay out checks to beneficiaries (currently 56 million Americans) on Aug. 3.
Paying government bills would indeed become very difficult around that day, economists say. But some experts on Social Security argue that the program has ways to keep its own checks flowing. And a protracted impasse over the borrowing limit is nearly unthinkable, given the concern that a partial shut-off of government funding could push a fragile economy back into recession.
What can be done?
So, setting aside talk of unpaid checks, how much trouble is Social Security in, and what can be done to fix it?
First, the problem isn't as daunting as the challenge of rising health-care costs within Medicare and Medicaid.
The program has a "trust fund" built up during surplus years, which can allow it to pay beneficiaries in full until 2036, the annual report from program trustees reckons. Even after that, the program's expected payroll-tax revenue would allow it to pay reduced benefits.
But that doesn't mean changes aren't needed sooner.
"What does matter is that Social Security expenses are expected to rise by about 50 percent – from about 4.3 to 6.3 percentage points of GDP [gross domestic product] – from 2008 to 2030, and taxes aren't," finance expert Eugene Steuerle of the Urban Institute wrote in a recent analysis.
In that sense, America's long-term debt problem is partly rooted in Social Security. Demographics are the driving force. The wave of baby boomer retirements comes atop a larger trend of growing longevity. In 1950, there were 16 workers for every retiree claiming benefits. It's now three workers per retiree, and by 2030 the ratio is expected to be 2 to 1.
The Social Security trustees, one Democrat and one Republican, recommended in their recent report in mid-May that Congress make fixes in "a timely way so that necessary changes can be phased in gradually," to spread needed tax hikes or benefit reductions over more generations.
Possible solutions include:
•A simple hike in the payroll tax. Bumping the current tax of 12.4 percent on worker payrolls (paid half by employers, half by employees) to 14.6 percent would close the financing gap for 75 years. This isn't a favorite solution, but it puts the scale of the problem in perspective.
•Bump up the eligibility age. This could be done as a one-year bump up in both the early and normal retirement ages (now 62 and 67, respectively) with advance warning. Or the ages could rise gradually with estimates of longevity. Or both those approaches could be combined.
•Eliminate or raise the current earnings cap on the payroll tax, so that high-income workers pay more into Social Security.
•Reduce payouts to the best-off beneficiaries.
•Adjust the COLA system, using what proponents say is a more accurate measure of inflation.
Critics of a new COLA system say it amounts to a benefit cut and a penalty for longevity. They cite government estimates that a typical beneficiary would receive $560 less a year at age 75 than they would under the current system. By age 85 that person would get $1,000 less per year.
The debate over the ultimately inevitable reforms to Social Security is a microcosm of the larger contest over how to get the nation on sounder footing financially.
The stumbling block is that politicians, and the voters who elect them, have gotten in the habit of spending at one level and taxing at a lower level. For a good long while, they've gotten away with it, but now credit-rating agencies like Moody's are warning that the US Treasury's top-notch rating could face a downgrade.
"Economically it's actually really easy to figure out how to get our longer-term fiscal house in order," says Diane Lim Rogers, chief economist at the nonpartisan Concord Coalition, which promotes fiscal discipline. Moody's is "worried that politically there's no will," she says. Its "caution is more about the politics than the economics."
"Peter DeFazio: Social Security Hit Hard By Chained CPI"
HuffingtonPost.com - By Paige Lavender - July 21, 2011
WASHINGTON -- Rep. Peter DeFazio (D-Ore.) took to the House floor Wednesday to decry efforts being made by President Barack Obama and the Gang of Six to adopt a chained consumer price index for Social Security.
DeFazio detailed how the new price index will hurt seniors and the middle class. While the plan would save $4 trillion over 10 years, it would would cause major cuts to be made to Medicare, Medicaid and Social Security, leaving many low- and middle-income groups with even more financial problems -- and hitting African-American women, veterans and seniors particularly hard.
Opponents of the change note that even the current price index isn't appropriate for seniors, who have not received a cost-of-living adjustment in two years, despite the fact that their medical costs have been rising faster than general inflation. The new index would further depress payments.
"Seniors will pay more, working people will pay more, veterans will pay more," DeFazio said. "Rich people? Nah. Not so much. But it would save $4 trillion."
President Obama has received a great deal of opposition since he announced his desire for a "big deal" on the budget that would involve major cuts to Social Security. Because Social Security is financed by its own designated tax and does not contribute to the deficit, many are arguing that Social Security cuts should be taken off the bargaining table.
"The Drive to Cut Social Security: Why Are the Gang of Six Scared of Information?"
By Dean Baker, Co-Director of the Center for Economic and Policy Research, HuffingtonPost.com - July 21, 2011
A central theme of the Gang of Six's deficit reduction crusade is lowering the annual cost of living for Social Security. They propose to change the formula so that the annual adjustment would be 0.3 percentage points lower than would otherwise be the case.
This cut will add up through time. After 10 years the reduction in benefits will be close to 3 percent. After 20 years it will be close to 6 percent and after 30 years, when beneficiaries are in their 90s, it will be close to 9 percent. A typical beneficiary gets close to $1,100 a month, so the Gang of Six would be taking close to $100 from their monthly check when they are in their 90s.
Since one third of retirees are almost completely dependent on Social Security, this will be felt. Anyone who questions the impact of such cuts should ask Speaker Boehner about a 9 percentage point increase in the top tax rate.
The rationale for the Gang of Six's Social Security cut is that the current inflation index doesn't take account of the fact that people can switch away from goods with rapidly rising prices to goods with slow rising prices. Research from the Bureau of Labor Statistics (BLS) shows that accounting for this switching would reduce the inflation rate by about 0.3 percentage points.
However, we know that the elderly have different consumption patterns than the population as a whole. They spend a larger share of their income on health care and less on computers and cell phones. BLS research shows that the rate of inflation experienced by the elderly is actually somewhat higher than the standard index used to adjust Social Security benefits. This research implies that if we are interested in an accurate cost of living adjustment, as the Gang of Six claim, then we might have to increase, rather than decrease, the annual adjustment.
The elderly cost of living index that shows they experience a higher rate of inflation is an experimental index, not a full price index like the other indexes calculated by BLS. However, it could be a full index if the Gang of Six and the rest of Congress wanted it to be. In other words, if the Gang of Six is really interested in a more accurate cost of living adjustment for Social Security, they can propose legislation that would direct BLS to construct a full elderly index. This would let them know whether it is necessary to raise, lower, or leave along the annual cost of living adjustment, to ensure that Social Security checks keep pace with the cost of living.
However the Gang of Six shows no interest in going this route. The only possible conclusion is that the Gang of Six is scared of what a full elderly index might show. In short, the gang of six is scared of the information. They obviously have made the decision to cut Social Security and they are not going to let evidence stand in the way.
"Social Security lies on super committee’s chopping block"
By Dorothy Zhang - The Daily Caller - 8/17/2011
The 12-member congressional committee charged with trimming the federal budget over the next 10 years has a new advocate for putting entitlement programs on the chopping block: President Barack Obama.
Obama, on a Midwest bus tour this week, said Democrats have to be “flexible” when it comes to spending on Social Security and Medicare.
But if the committee did want to take on Social Security, what would need to happen?
Craig Jennings, a federal fiscal policy director at OMB Watch, a nonprofit that monitors federal spending, said there are two ways to close the gap between Social Security’s expenditures and its revenues: increase the payroll tax or lower current benefits.
How do you cut benefits? Raising the retirement age is one way, Jennings said. Changing the way inflation is measured for automatic annual Social Security cost-of-living adjustments is another. Both methods would allow Congress to preserve much of the existing program.
David John, a senior research fellow at the Heritage Foundation, a conservative think tank, said he could see the committee agreeing to both of those changes.
“I don’t anticipate that the super committee is going to do a wholesale change in the program,” John said. “I expect … if anything, small changes around the edges.”
The Congressional Budget Office projects that in fiscal year 2011, Social Security’s outlays will total $733 billion, or one-fifth of the federal budget.
But Jennings argued that at this point cutting Social Security makes no sense from a deficit-reduction standpoint.
“Social Security doesn’t have an impact on the broader budget deficit, certainly not in the near term,” Jennings added.
Calling the talking about cutting Social Security to balance the budget in Washington “the wrong conversation,” the powerful nonprofit senior advocacy group AARP shared Jennings’s view.
“Social Security is self-financed by payroll tax contributions, which are separate from the rest of the budget, and has not created the current fiscal mess,” the group said in a statement. “It shouldn’t be used to fix a deficit it didn’t cause.”
On one hand, AARP is right. Social Security was running in cash surpluses up until last year, John said, so it is true that the program did not cause federal deficits.
On the other hand, though, filling the gap between Social Security’s expenditures and revenues in coming years will make current spending problems worse, since paying full benefits from this point forward will require additional uses of other types of tax dollars, John cautioned.
Republicans have said they are open to changes in entitlement programs. Democratic leaders in Congress, however, do not share that view. They say they worked hard to protect Medicare, Medicaid and Social Security in the debt ceiling deal.
Social Security expenditures exceeded the program’s revenues in 2010, excluding interest credited to the trust funds, for the first time since 1983, according to a Congressional Budget Office report released this month. The CBO also projects the gap will continue: Over the next five years, expenditures will be about five percent greater than revenues.
"Social Security disability on verge of insolvency"
By STEPHEN OHLEMACHER - Associated Press – August 21, 2011
WASHINGTON (AP) — Laid-off workers and aging baby boomers are flooding Social Security's disability program with benefit claims, pushing the financially strapped system toward the brink of insolvency.
Applications are up nearly 50 percent over a decade ago as people with disabilities lose their jobs and can't find new ones in an economy that has shed nearly 7 million jobs.
The stampede for benefits is adding to a growing backlog of applicants — many wait two years or more before their cases are resolved — and worsening the financial problems of a program that's been running in the red for years.
New congressional estimates say the trust fund that supports Social Security disability will run out of money by 2017, leaving the program unable to pay full benefits, unless Congress acts. About two decades later, Social Security's much larger retirement fund is projected to run dry as well.
Much of the focus in Washington has been on fixing Social Security's retirement system. Proposals range from raising the retirement age to means-testing benefits for wealthy retirees. But the disability system is in much worse shape and its problems defy easy solutions.
The trustees who oversee Social Security are urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994. That would provide only short-term relief at the expense of weakening the retirement program.
Claims for disability benefits typically increase in a bad economy because many disabled people get laid off and can't find a new job. This year, about 3.3 million people are expected to apply for federal disability benefits. That's 700,000 more than in 2008 and 1 million more than a decade ago.
"It's primarily economic desperation," Social Security Commissioner Michael Astrue said in an interview. "People on the margins who get bad news in terms of a layoff and have no other place to go and they take a shot at disability,"
The disability program is also being hit by an aging population — disability rates rise as people get older — as well as a system that encourages people to apply for more generous disability benefits rather than waiting until they qualify for retirement.
Retirees can get full Social Security benefits at age 66, a threshold gradually rising to 67. Early retirees can get reduced benefits at 62. However, if you qualify for disability, you can get full benefits, based on your work history, even before 62.
Also, people who qualify for Social Security disability automatically get Medicare after two years, even if they are younger than 65, the age when other retirees qualify for the government-run health insurance program.
Congress tried to rein in the disability program in the late 1970s by making it tougher to qualify. The number of people receiving benefits declined for a few years, even during a recession in the early 1980s. Congress, however, reversed course and loosened the criteria, and the rolls were growing again by 1984.
The disability program "got into trouble first because of liberalization of eligibility standards in the 1980s," said Charles Blahous, one of the public trustees who oversee Social Security. "Then it got another shove into bigger trouble during the recent recession."
Today, about 13.6 million people receive disability benefits through Social Security or Supplemental Security Income. Social Security is for people with substantial work histories, and monthly disability payments average $927. Supplemental Security Income does not require a work history but it has strict limits on income and assets. Monthly SSI payments average $500.
As policymakers work to improve the disability system, they are faced with two major issues: Legitimate applicants often have to wait years to get benefits while many others get payments they don't deserve.
Last year, Social Security detected $1.4 billion in overpayments to disability beneficiaries, mostly to people who got jobs and no longer qualified, according to a recent report by the Government Accountability Office, the investigative arm of Congress.
Congress is targeting overpayments.
The deficit reduction package enacted this month would allow Congress to boost Social Security's budget by about $4 billion over the next decade to invest in programs that identify people who no longer qualify for disability benefits. The Congressional Budget Office estimates that increased enforcement would save nearly $12 billion over the next decade.
At the same time, the application process can be a nightmare for legitimate applicants. About two-thirds of initial applications are rejected. Most of these people drop their claims, but for those willing go through an appeals process that can take two years or more, chances are good they eventually will get benefits.
Astrue has pledged to reduce processing times for applicants' appeals, and he has had some success, even as the number of claims skyrockets. The number of people waiting for decisions has increased, but their wait times are going down.
"It's ludicrous to say that the backlog problem is getting worse," Astrue said. "The backlog problem has gotten dramatically better."
Patricia L. Foster said she was working as a nurse in a hospital in Columbia, S.C., in 2005 when she was attacked by a patient who was suffering from a mental illness. Foster, 64, said she injured her neck so bad she had a plate inserted. She said she also suffers from post-traumatic stress disorder.
Foster was turned down twice for Social Security disability benefits before finally getting them in 2009, after hiring an Illinois-based company, Allsup, to represent her. She said she was awarded retroactive benefits, though the process was demeaning.
"I have to tell you, when you're told you cannot return to nursing because of your disability, you don't know how long I cried about that," Foster said. "And then Social Security says, 'Oh no, you don't qualify.' You don't know what that does to you emotionally. You have no idea."
Federal disability programs: www.ssa.gov/disability/
Congressional Budget Office projections: www.cbo.gov/doc.cfm?index=12375
Government Accountability Office report: www.gao.gov/products/GAO-11-724
"Social Security to hand out first raises since ’09"
By Associated Press - bostonherald.com - Around the Nation - October 18, 2011
WASHINGTON — Social Security recipients will get a raise in January — their first increase in benefits since 2009. It’s expected to be about 3.5 percent.
Some 55 million beneficiaries will find out for sure Wednesday when a government inflation measure that determines the annual cost-of-living adjustment is released.
Congress adopted the measure in the 1970s, and since then it has resulted in annual benefit increases averaging 4.2 percent. But there was no COLA in 2010 or 2011 because inflation was too low. That was small comfort to the millions of retirees and disabled people who have seen retirement accounts dwindle and home values drop during the period of economic weakness, said David Certner, legislative policy director for the AARP.
"People certainly feel like they are falling behind, and these are modest income folks to begin with, so every dollar counts," Certner said. "I think sometimes people forget what seniors’ incomes are."
Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.
Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.
Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.
Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.
If consumer prices increases from year to year, Social Security recipients automatically get higher payments, starting the next January. If price changes are negative, the payments stay unchanged.
Only twice since 1975 — the past two years — has there been no COLA.
Wednesday’s COLA announcement will come as a special joint committee of Congress weighs options to reduce the federal government’s $1.3 trillion budget deficit. In talks this summer, President Barack Obama floated the idea of adopting a new measure of inflation to calculate the COLA, one that would reduce the annual increases.
Advocates for seniors mounted an aggressive campaign against the proposal, and it was scrapped. But it could resurface in the ongoing talks.
"We’re very concerned about that," said Web Phillips of the National Committee to Preserve Social Security and Medicare. "I think that what this illustrates is the dangers of trying to make Social Security policy in the context of deficit reduction."
Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation the past two years.
For example, average gasoline prices topped $4 a gallon in the summer of 2008. But by January 2009, they had fallen below $2. Today, the national average is about $3.46 a gallon.
"A lot of that increase had to do with energy," Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass., said of the 2009 change.
As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they weren’t to get another increase until consumer prices exceeded the levels measured in 2008.
So far this year, prices have been higher than that, Vlasenko said. Based on consumer prices in July and August, the COLA for 2012 would be about 3.5 percent. Vlasenko estimates the COLA will be from 3.5 percent to 3.7 percent.
Advocates for seniors say it’s about time.
"If you’ve been at the grocery store lately and remember what you used to pay for things, see what you’re paying for things today," Phillips said. "The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time."
"New formula could cut future benefits, raise taxes - New inflation measure could reduce Social Security benefit increases, raise taxes"
By Stephen Ohlemacher, Associated Press, November 7, 2011
WASHINGTON (AP) -- Just as 55 million Social Security recipients are about to get their first benefit increase in three years, Congress is looking at reducing future raises by adopting a new measure of inflation that also would increase taxes for most families -- the biggest impact falling on those with low incomes.
If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans' benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would qualify for Medicaid, Head Start, food stamps, school lunch programs and home heating assistance than under the current measure.
Taxes would go up by $60 billion over the next decade because annual adjustments to the tax brackets would be smaller, resulting in more people jumping into higher tax brackets because their wages rose faster than the new inflation measure. Annual increases in the standard deduction and personal exemptions would become smaller.
Despite fierce opposition from seniors groups, the proposal is gaining momentum in part because it would let policymakers gradually cut benefits and increase taxes in a way that might not be readily apparent to most Americans. Changes at first would be small -- the Social Security increase would be cut by just a few dollars in the first year.
But the impact, as well as savings to the government, would grow over time, generating about $200 billion in the first decade and much more after that.
The proposal to adopt a new Consumer Price Index was floated by the Obama administration during deficit reduction talks in the summer. Now, it is one of the few options supported by both Democratic and Republican members of a joint supercommittee in Congress working to reduce government borrowing.
The committee of six Democrats and six Republicans is struggling to come up with a plan to reduce government red ink by at least $1.2 trillion over the next decade. Changing the inflation index alone would put them a sixth of the way there.
"I think the thought process behind this is, slip this in, people won't understand it," said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare.
Richtman's group is spending about $2 million on radio, TV and direct mail ads to fight cuts in Social Security and Medicare. His message to Congress: "Don't believe that taking this approach to cutting Social Security will not be noticed. You will pay for it."
A TV ad by AARP puts it this way: "We are 50 million seniors who earned our benefits, and you will be hearing from us today -- and on Election Day."
The inflation measure under consideration is called the Chained Consumer Price Index, or chained CPI. On average, the measure shows a lower level of inflation than the more widely used CPI for All Urban Consumers.
Many economists argue that the chained CPI is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience.
For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters.
A report by the Moment of Truth Project, a group formed to promote the deficit reduction package produced by President Barack Obama's deficit commission late last year, supports a new inflation measure. "Rather than serving to raise taxes and cut benefits, switching to the chained CPI would simply be fulfilling the mission of properly adjusting for cost of living," it argues.
The new measure would reduce Social Security cost-of-living adjustments, or COLAs, by an average of 0.3 percentage points each year, according to the Social Security Administration. Next year's increase, the first since 2009, will be 3.6 percent, starting in January.
Under the chained CPI, yearly benefits for a typical 65-year-old would be about $136 less, according to an analysis of Social Security data. At age 75, annual benefits under the new index would be $560 less. At 85, the cut would be $984 a year, and at 95, the annual income loss would amount to $1,392.
"For someone in the first year, it may not seem a lot," said AARP's David Certner. "But as people get older and then they get poorer and more reliant on Social Security, the cut gradually gets larger and larger."
In all, adopting the chained CPI would reduce Social Security benefits by $112 billion over the next decade. Federal civilian and military pensions would be $24 billion lower, according to the nonpartisan Congressional Budget Office.
If adopted across the government, fewer people would be eligible for many anti-poverty programs because the poverty level also would increase at a lower rate each year. That would result in fewer people living below the official poverty line, despite having the same income.
The tax increases would hit low-income families the hardest, while high-income taxpayers would see smaller changes. The wealthiest taxpayers already pay taxes at the highest marginal rate, currently 35 percent.
For example, by 2021, taxpayers making between $10,000 and $20,000 would see a 14.5 percent increase in their federal taxes with a chained CPI, according to an analysis by the Joint Committee on Taxation. Taxpayers making more than $1 million would get a tax increase of 0.1 percent.
Despite the political backlash, some lawmakers see the new inflation measure as a way to help break the deadlock in Washington over tax increases and cuts in benefit programs. Most Republicans adamantly oppose tax increases, while Democrats have said they won't support benefit cuts without a substantial increase in revenue.
Rep. Xavier Becerra, a California Democrat who serves on the supercommittee, helped lead the fight over the summer against adopting the chained CPI. But in an interview last week, he wouldn't rule out supporting a package that included it.
"If you're going to simply try to save money by changing the CPI, you can do that," Becerra said. "But then be up front and tell seniors what you're doing. You're throwing them under the bus to save money."
"Social Security not deal it once was for workers"
By STEPHEN OHLEMACHER | Associated Press – August 5, 2012
WASHINGTON (AP) — People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It's a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press.
Previous generations got a much better bargain, mainly because payroll taxes were very low when Social Security was enacted in the 1930s and remained so for decades.
"For the early generations, it was an incredibly good deal," said Andrew Biggs, a former deputy Social Security commissioner who is now a scholar at the American Enterprise Institute. "The government gave you free money and getting free money is popular."
If you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes, and more if you were a low-income worker, as long you made it to age 78 for men and 81 for women.
As recently as 1985, workers at every income level could retire and expect to get more in benefits than they paid in Social Security taxes, though they didn't do quite as well as their parents and grandparents.
A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.
Social Security benefits are progressive, so most low-income workers retiring today still will get slightly more in benefits than they paid in taxes. Most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration.
The shift among middle-income workers is happening just as millions of baby boomers are reaching retirement, leaving relatively fewer workers behind to pay into the system. It's coming at a critical time for Social Security, the federal government's largest program.
The trustees who oversee Social Security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits.
To cover the shortfall, future retirees probably will have to pay higher taxes while they are working, accept lower benefits after they retire, or some combination of both.
"Future generations are going to do worse because either they are going to get fewer benefits or they are going to pay higher taxes," said Eugene Steuerle, a former Treasury official who has studied the issue as a fellow at the Urban Institute.
How can you get a better return on your Social Security taxes?
Live longer. Benefit estimates are based on life expectancy. For those turning 65 this year, Social Security expects women to live 20 more years and men to live 17.8 more.
But returns alone don't fully explain the value of Social Security, which has features that aren't available in typical private-sector retirement plans, said David Certner, legislative policy director for AARP.
Spouses can get benefits even if they never earned wages. Children can get benefits if they have a working parent who dies. People who are too disabled to work can get benefits for life.
Because of spousal benefits, most married couples with only one wage earner will continue to get more in benefits than they pay in taxes for the foreseeable future.
"You are buying this lifetime inflation-protected benefit that you can never run out of and that will always be there for you," Certner said. "It protects your spouse, protects your family and protects you from disability."
Certner noted that private pensions, retirement savings and home values took a big hit when the economy collapsed, putting a dent in the retirement plans of many Americans.
"When you have that combination of factors, Social Security becomes more and more important," Certner said. Social Security is financed by a 12.4 percent tax on wages. Workers pay half and their employers pay the other half. Self-employed workers pay the full 12.4 percent.
The tax is applied to the first $110,100 of a worker's wages, a level that increases each year with inflation. For 2011 and 2012, the tax rate for employees was reduced to 4.2 percent, but is scheduled to return to 6.2 percent in January.
The payroll tax rate was only 2 percent in 1937, the first year Social Security taxes were levied. It did not surpass 6 percent until 1962.
Even with low tax rates, Social Security could afford to pay benefits in the early years because there were more workers paying the tax for each person receiving benefits than there are today. In 1960, there were 4.9 workers paying Social Security taxes for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, a ratio that will drop to 1.9 workers by 2035, according to projections by the Congressional Budget Office.
About 56 million people now collect Social Security benefits, and that number is projected to grow to 91 million in 2035. Monthly benefits average $1,235 for retired workers and $1,111 for disabled workers. Social Security provides most older Americans a majority of their income. About one-quarter of married couples and just under half of single retirees rely on Social Security for 90 percent or more of their income, according to the Social Security Administration.
"Social Security is what's carrying me," said Neta Homier, a 79-year-old retired hospital worker from Toledo, Ohio. "There's no way I would have made it without it. The kids, they're on their own, now, and I'm not going to be a burden for them. That's what it would have been if I hadn't had Social Security."
Homier said she started receiving Social Security when she was 63 and now gets about $800 a month, after her Medicare premiums are deducted. She said her father died at 51, so he never received Social Security, and her mother died at 71 and collected benefits for only a few years.
"It's definitely worth it," she said.
At 52, Anthony Riley of Columbus, Ohio, has a different perspective. Riley said he has a private retirement account because he worries that Social Security won't provide adequate benefits throughout his retirement.
"I use to think that it was worth paying for your Social Security, but now I don't think so," Riley said. At 22, Mackenzie Millan of Los Angeles has even greater doubts about whether Social Security will be a good deal for her.
"The money that I put aside now, it's not like that money is going to be waiting for me. That money is going toward someone else," the recent college graduate said. "If I wanted Social Security 50 years from now, when I wanted to retire, I would have to hope that someone else is still working and putting money aside in their paychecks to pay for my Social Security at that point."
Associated Press writer Andres Gonzalez contributed to this report.
Keep up with the AP Social Security series on Twitter: http://apne.ws/NRmPSQ
Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap
Urban Institute study: http://tinyurl.com/4svpdqy
Social Security Administration: http://tinyurl.com/cf82s6a
Calculate your own benefits: http://tinyurl.com/cpsk5qt
EDITOR'S NOTE _ Few issues touch as many people in the United States as does Social Security. In a four-part series continuing through August, The Associated Press examines the changing dynamics of the government retirement program and what it means for workers and present and future beneficiaries. This first story examines whether Social Security is still a good deal, and for whom.
"Dems slam Ryan over Social Security privatization"
By STEPHEN OHLEMACHER | Associated Press - August 19, 2012
WASHINGTON (AP) — Democrats are eagerly renewing their fight against privatizing Social Security now that Republican presidential candidate Mitt Romney has picked Paul Ryan as his running mate. It was a fight that didn't go well for the GOP when President George W. Bush pushed the idea in 2005.
In his 2010 "Road Map for America's Future," the Wisconsin congressman proposed a plan to allow younger workers to divert more than one-third of their Social Security taxes into personal accounts that they would own and could will to their heirs.
Ryan wrote that the accounts would provide workers an opportunity "to build a significant nest egg for retirement that far exceeds what the current program can provide." Workers 55 and older would stay in the current system.
Romney hasn't embraced the proposal and Ryan, chairman of the House Budget Committee, didn't include it in either of the federal budgets passed by House Republicans the past two years. But now that Ryan is running for vice president, Democrats hope to capitalize on the issue.
Bush's proposal for private accounts received a chilly reception from members in both parties in Congress, though Ryan embraced it. Democrats used the issue against GOP congressional candidates in the 2006 election, when they regained control of the House and Senate.
"The very last thing we ought to be doing is putting at risk the retirement security of millions of America's seniors," said Rep. Debbie Wasserman Schultz of Florida, who heads the Democratic National Committee.
Until now, Social Security had been largely absent from the presidential campaign. President Barack Obama has yet to lay out a detailed plan for addressing the issue, and his silence is drawing criticism from advocates who supported him in the past. Romney has been more forthcoming with proposals, but Social Security has not been a big part of his campaign, either.
Romney, in his book, "No Apology," said he liked the idea of personal accounts. But, he wrote, "Given the volatility of investment values that we have just experienced, I would prefer that individual accounts were added to Social Security, not diverted from it, and that they were voluntary."
Romney's current plan for Social Security doesn't mention personal accounts. Instead, he proposes a gradual increase in the retirement age to account for growing life expectancy. For future generations, Romney would slow the growth of benefits "for those with higher incomes."
Romney says tax increases should be off the table, and current beneficiaries and those near retirement should be spared from cuts.
"Mitt Romney and Paul support gradual reforms to Social Security that protect current beneficiaries from any benefit disruptions while strengthening the program to ensure that it doesn't go bankrupt," Romney campaign spokesman Ryan Williams said.
The trustees who oversee Social Security say the trust funds that support the program will run dry in 2033. At that point, Social Security will generate only enough tax revenue to pay about 75 percent of benefits, triggering automatic cuts unless Congress acts.
During the 2008 campaign, Obama said he wanted to improve Social Security's finances by applying the payroll tax to annual wages above $250,000. It is now limited to wages below $110,100, a level that increases with inflation.
Obama also pledged to oppose raising the retirement age or reducing annual cost-of-living adjustments, or COLAs. "Let me be clear, I will not do either," Obama said at the time.
Last year, however, Obama put on the table a proposal to reduce annual COLAs during deficit-reduction talks with House Speaker John Boehner, R-Ohio. The talks ultimately failed and nothing came of the proposal, but it raised questions about whether Obama would honor his 2008 pledge.
"A national politician would do well to strongly identify themselves with Social Security, not just with rhetoric, but to be very clear that they understand the pain people are experiencing today, that they stand behind this program and they will protect the citizenry and they will not cut benefits," said Eric Kingson, a Syracuse University professor who co-founded Social Security Works. "I hope to hear that from the White House. I have not heard that yet."
Obama offered some principles to strengthen Social Security in his 2011 State of the Union address.
"We must do it without putting at risk current retirees, the most vulnerable or people with disabilities, without slashing benefits for future generations and without subjecting Americans' guaranteed retirement income to the whims of the stock market," Obama said in the speech.
Last week, Vice President Joe Biden made a more sweeping guarantee during a campaign swing in southern Virginia, telling a customer at a diner that Social Security will not be changed.
"I guarantee you, flat guarantee you, there will be no changes in Social Security," Biden told the customer, according to a White House pool report. "I flat guarantee you."
A Biden adviser said later the vice president was merely reassuring the woman that her benefits would not be changed. The adviser spoke on condition of anonymity because he was not authorized to speak publicly about the issue.
Obama campaign spokesman Adam Fetcher said the president "has put forward a set of principles to guide bipartisan action to strengthen it for future generations. Rather than laying the groundwork for a bipartisan approach as the president has done, Mitt Romney's only solution would mean deep benefit cuts for future retirees. His running mate, Paul Ryan was an architect of privatization."
Romney's campaign chided Obama's inaction.
"His failure to lead on entitlements has put the future of Social Security at risk," said Williams, the Romney spokesman. "Mitt Romney is committed to ensuring that Social Security is there for future generations and he has a comprehensive plan to save Social Security with commonsense reforms."
"New inflation measure proposed by GOP would mean smaller Social Security COLAs, higher taxes"
By Associated Press, December 4, 2012
WASHINGTON — Tweaking the way the government measures inflation sounds like an obscure method to help reduce budget deficits, but over time it would lead to significantly lower Social Security benefits while increasing taxes, mainly on low- and middle-income families.
If adopted across the government, the change would have far-reaching effects because so many programs are adjusted each year based on year-to-year changes in consumer prices.
It would mean smaller annual increases in Social Security payments, government pensions and veterans’ benefits. Taxes would slowly increase because annual adjustments to income tax brackets would be smaller, pushing more people into higher tax brackets. Over time, fewer people would be eligible for antipoverty programs like Medicaid, Head Start, food stamps, school lunches and home heating assistance because annual adjustments to the poverty level would be smaller, leaving fewer people under the official poverty line.
House Republicans proposed the new inflation measure Monday as part of a 10-year, $2.2 trillion plan to avoid the year-end fiscal cliff, a combination of automatic tax increases and spending cuts that economists warn could send the economy back into recession. They also proposed raising the eligibility age for Medicare from 65 to 67, and raising taxes by $800 billion.
President Barack Obama supported the new inflation measure in deficit-reduction talks last year. That increases the possibility it could become part of a compromise, though White House officials have said they oppose including changes to Social Security in the current talks.
Obama sidestepped the issue when he was asked about it in a broadcast interview Tuesday.
“I am willing to look at anything that strengthens our system and makes it, and makes it clear over the long term that the basic social safety net for our seniors is going to be there,” Obama said on Bloomberg Television.
The inflation measure under consideration is called the Chained Consumer Price Index. On average, the measure shows a lower level of inflation than the more widely used Consumer Price Index.
The chained CPI assumes that as prices rise, consumers turn to lower-cost alternatives, reducing the amount of inflation they experience. For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents argue mockingly, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters.
The new inflation measure is unpopular among many Democrats in Congress and advocates for seniors who complain that it would disproportionately hit low-and middle-income families. AARP and other groups have been fighting it for years.
“Think about it this way. You’re standing on the deck of a boat and you’re in very deep water and they want you to swim but they are going to put a log chain around your foot. That’s chained CPI,” Sen. Tom Harkin, D-Iowa, said at a recent rally on Capitol Hill to oppose cuts to benefit programs. “One way or the other it’s going to drag you to the bottom.”
But the new inflation measure is popular among budget hawks in part because it cuts benefits and increases taxes gradually in ways that might not be readily apparent to most Americans. The savings, however, become substantial over time, adding up to more than $200 billion over the next decade, according to congressional estimates.
“It’s a proposal with bipartisan support because it more accurately reflects the changes in costs,” said Michael Steel, spokesman for House Speaker John Boehner, R-Ohio.
Overall, the proposal would cut Social Security benefits by $102 billion over the next decade, according to an estimate by the nonpartisan Congressional Budget Office. It would cut government pensions and veterans’ benefits by $21 billion over the same time period. Supplemental Security Income, the disability program for the poor, would be cut by nearly $7 billion
For the more than 56 million people who get Social Security, the new measure would reduce annual cost-of-living adjustments, or COLAs, by an average of 0.3 percentage points each year, according to the Social Security Administration. Next year’s increase is scheduled to be 1.7 percent. Under the chained CPI, it would be about 1.4 percent.
“Seniors who on average get about $14,000 in Social Security benefits a year are going to get, on average, about a $21 a month increase in their benefits to pay for all the increased costs of their medicine, increased cost of their rent, increased cost of daily living — $21 a month,” said Rep. Xavier Becerra of California, the top Democrat on the House Ways and Means Social Security subcommittee. “Republicans are saying in their proposal we must cut that cost of living increase for America’s Social Security recipients who paid for those benefits.”
Once the change is fully phased in, yearly Social Security benefits for a typical middle-income 65-year-old would be about $136 less, according to an analysis of Social Security data. At age 75, annual benefits under the new index would be $560 less. At 85, the cut would be $984 a year.
The chained CPI would cut Medicaid, the health insurance program for the poor, by $12 billion over the next decade. Medicare, the health insurance program for seniors, would see savings of almost $9 billion.
Taxes, however, would rise by about $65 billion over the same period.
The tax increases would hit low-income families the hardest, while high-income taxpayers would see smaller changes, according to a 2011 analysis by the nonpartisan Joint Committee on Taxation, the official scorekeeper for Congress.
For example, by 2021, taxpayers making between $10,000 and $20,000 would see a 14.5 percent increase in their federal taxes with a chained CPI, according to the analysis. Taxpayers making $200,000 to $500,000 a year would get a tax increase of 0.2 percent. People making more than $1 million would get a tax increase of 0.1 percent.
...more to come...
"Misguided Social Security ‘Reform’"
The New York Times, Editorial, January 12, 2013
At the end of last year, just shy of the 11th hour in the fiscal cliff negotiations, President Obama made an offer that included a Republican-backed idea to cut spending by lowering the cost-of-living adjustment for Social Security benefits. The move shocked Congressional Democrats and dismayed Mr. Obama’s liberal base.
The offer, however, was rejected by House Republicans who could not stomach the tax increases and other concessions that Mr. Obama demanded as part of the deal. The talks moved on, and when all was said and done, Republicans did not get the lower cost-of-living adjustments (known as COLAs) and Mr. Obama did not get the concessions he had sought.
But that is not the end of the story. As the next round of deficit reduction talks gets under way, the administration seems determined to include the COLA cut in any new package of spending reductions. Rather than using the issue as a bargaining ploy, the administration appears to have embraced it as a worthy end in itself.
Is it? In a word, no.
That is not to say that Social Security should be off the table. There are reforms that are eminently sensible, if only the political will could be found to enact them. But reducing the COLA is not a sound idea now and may never be.
At issue is the way inflation is calculated. The administration’s offer in the fiscal cliff talks — and the approach long advocated by Republicans — calls for using a new measure of inflation, called the “chained” Consumer Price Index, to calculate the COLA.
Unlike the gauge of inflation currently in use, the chained index captures the ability of consumers to adjust their spending across categories as relative prices change — for instance, spending less on fuel as gas prices go up and more on groceries as food prices go down. Such substitution causes the chained C.P.I. to rise more slowly than the current measure, which would result in a lower annual COLA and huge budget savings. The move to a chained C.P.I. would reduce benefits by some $135 billion over 10 years, and far more in later decades because of compounding.
The administration and other proponents of switching to a chained C.P.I. contend that it is a technical fix in the interest of greater accuracy, not a benefit cut per se.
But that claim does not stand up to scrutiny. The chained index is in many ways a better method of tracking price changes for the broad working population, but there is no compelling evidence that it is better for computing the Social Security COLA.
What is known is that elderly households tend to have lower incomes and lower expenditures than younger households, and that more of their purchases are for needs that cannot be met by switching to products and services in unrelated categories. That indicates that they do not have the same flexibility as younger households to respond to price changes while still maintaining their standards of living. And because of the way it is calculated, the chained C.P.I. would also result in delayed upward adjustments in the COLA in times of accelerating inflation. Such delays would translate into real benefit cuts, leaving retirees worse off.
If, as the administration says, the aim is to set the COLA in the most accurate way possible, then the obvious approach is to have the Bureau of Labor Statistics develop a statistically rigorous index to track inflation as experienced by retirees. A more informal index from the bureau that looks at the effects of inflation on the elderly shows that the COLA is too low, not too high, in part because of medical costs. But the number of households sampled is too small to be sure.
A rigorous index would settle the issue of whether the current COLA adjustments are high, low or about right. The fact that some policy makers are willing, even eager, to move ahead with changing the COLA without having developed a more reliable gauge only feeds the impression that they are trying to get away with an unjustified benefit cut.
In the meantime, there are other, well-researched reforms to Social Security that the administration and other policy makers could pursue. For instance, it is well understood that upper-income people live longer than the less affluent. The formula for determining Social Security benefits could be gradually and modestly adjusted to reflect those longer lives, while making the system more progressive and cutting spending. Another sensible reform would be to raise the level of wages currently subject to the Social Security payroll tax, so that it better reflects the income gains of top earners over the past several decades.
But prematurely forcing through a COLA cut would be unnecessary and unwise.
"The five biggest lies about entitlement programs: Social Security and Medicare are big issues, and not everyone is telling the truth about them."
By Michael Hiltzik, Los Angeles Times, March 8, 2013
Everybody loves lists.
Most of those you see in the papers or online tend toward the inconsequential (The Six Best "Fast & Furious" Movies).
So here's a list with a bit more gravitas: The five biggest lies you're being told about entitlement programs.
Never mind that the very word "entitlement" is a lie. Social Security and Medicare got that name because workers became "entitled" to those benefits by paying into the system. In recent years, however, the term has become distorted to signify benefits people are entitled to without earning them.
Leaving that whopper aside, here are the top five.
Lie No. 1: The payroll tax hike is killing the retail economy.
As with all great lies, there's a nugget of truth buried inside this one. Evidence exists that the lower paychecks most American consumers started seeing at the beginning of the year took a bite out of consumer spending. A slew of low-end retailers and merchants, including Wal-Mart, contend that the Jan. 1 change in the Social Security payroll tax, which lowered the average household income by about $80 a month, came out of their hides.
Blaming the payroll tax, however, ignores the whole story. First, on Jan. 1 the tax wasn't hiked; it was restored to its 2010 level, after a two-year "holiday" that reduced the withholding to 4.2% of employees wages (up to wages of $101,800 in 2011 and $110,100 last year) from the 6.2% level in effect since 1990.
The idea was to deliver stimulus dollars to middle- and working-class families. But the holiday was always a wretched idea, in part because of what everyone knew would happen when the old rate reappeared —people treated it as a pay cut.
The worse flaw was that it was a lousy way to deliver targeted working-class relief. The change replaced the Obama administration's previous Making Work Pay tax credit, which delivered up to $800 to families earning $12,900 to $150,000.
The payroll tax break, by contrast, went only to those who pay into Social Security. So it left out 5.7 million state and local workers (mostly teachers). On the plus side, it fattened the paychecks even of the nation's top earners by a much-needed $2,100 or so.
Lie No. 2: "Entitlement" benefits for millionaires and billionaires are a costly problem.
This is a favorite of people like hedge fund billionaire Peter G. Peterson, a sworn enemy of Social Security and Medicare. The theme is: Look how wasteful Social Security is — why it even goes to people like me! The goal is to "means test" these benefits so they go only to people who "need them," as Peterson says.
The lie here is the assertion that a significant portion of benefits goes to multimillionaires. In fact, their share of benefits is minuscule. That's because there aren't very many of them, and they don't get more than the maximum old-age benefit, which was $30,156 last year. According to the IRS, only 47,732 households reported income of more than $1 million, including Social Security benefits, in 2010. Their total take was about $1 billion, after paying income tax on their Social Security checks. They account for about 14 hundredths of one percent of all Social Security outlays.
By contrast, more than 75% of benefits go to recipients with $20,000 or less in non-Social Security income and more than 90% to people with incomes below $50,000, as economists Dean Baker and Hye Jin Rho of the Center for Economic and Policy Research showed in March 2011.
To reduce program costs by even a couple of percentage points, you have to start cutting benefits for people earning as little as $40,000 in non-Social Security income. So when Pete Peterson starts bemoaning how his Social Security check is cutting into his granddaughter's future, it's the working class that should bolt the door.
Lie No. 3: Social Security and Medicare are $60 trillion in the hole.
As efforts to cut Social Security and Medicare gather steam in the budget wrangling in Washington, you'll hear these mega-trillions being thrown around more and more. Beware. They're numbers designed to terrify, not edify.
The assertion comes from something called the "infinite horizon" projection. It's a calculation of funding gaps projected out to the limitless future and then converted to present value — meaning what the cost would be if we had to pay it all today. For Social Security, the figure was $20.5 trillion, as reported in the program trustees' latest report. For Medicare, the number comes to about $42.7 trillion.
Even professional actuaries say this calculation is bogus. In 2003, when it was first inserted into Social Security's annual report, the American Academy of Actuaries warned the trustees that the infinite projection provides "little if any useful information" and is "likely to mislead anyone lacking technical expertise ... into believing that the program is in far worse financial condition than is actually indicated."
A big part of the lie is that these projections aren't applied to the other side of the ledger — the programs' revenues and growth in the U.S. economy projected out to infinity. The latter, the trustees calculate, would be about $1.5 quadrillion. (How's that for a big number?) For Social Security, the infinite gap accounts for only 1.3% of infinite GDP, which would bring it about to the level we spend today on defense and veterans affairs.
Lie No. 4: You're paying too much (or too little) for your benefits.
This is a double-barreled lie, based on the misconception that Social Security and Medicare are retirement funds. They're not; they're insurance programs. What you recover depends on your personal circumstances, but the point is they're there when you need them.
The idea that the social insurance programs will impoverish today's children while their grandparents make out like bandits was recently rehashed in a Wall Street Journal op-ed by former hedge fund manager Stanley Druckenmiller and two colleagues. "A typical third-grader will get back (in present value terms) only 75 cents for every dollar he contributes to Social Security over his lifetime," they wrote. "Meanwhile, many seniors with greater means nearing retirement age will pocket a handsome profit."
That isn't true, according to C. Eugene Steuerle and Stephanie Rennane of the Urban Institute, whose 2011 calculations are the basis for most such assertions. They computed that a couple retiring in 2010 with annual earnings of $113,000 would have paid about $750,000 in 2011 dollars into Social Security over their working lives, and collect (on average) $665,000 in lifetime benefits. (The tax computation includes both the employee's and employer's share, and is adjusted for inflation and a small investment gain; the benefit calculation is also discounted for future inflation.)
Not exactly a "handsome profit," but that's how insurance works. Some people will die two years into retirement, others will live to 100. Some families will be sustained by Social Security, some will collect disability pay, some will receive dependent benefits, some won't need any of those payments. But no other public or commercial insurer provides all those potential benefits at Social Security's low cost.
What skews the calculations is Medicare, which leads us to:
Lie No. 5: Medicare, Social Security — it's all the same.
Not at all. Medicare is in big trouble, almost exclusively because of rising healthcare costs. Social Security can be financially tweaked by changing its tax or benefit structure, or both. That won't work with Medicare, which is the prisoner of this big external factor. Steuerle's and Rennane's calculations show how these costs outstrip individual contributions — our high-income couple retiring in 2010 will have paid $149,000 in taxes, yet receive $351,000 in lifetime benefits. The imbalance increases for future retirees.
The lesson is that it's misleading to lump these two programs together as if they have the same issues amenable to the same solutions. But that's what you usually hear: "Social Security is mostly OK, Medicare is in big trouble, so entitlement programs are in big trouble and we should cut Social Security." See how much trouble a lie can make?
"Senate Democrats unveil budget blueprint"
By ANDREW TAYLOR | Associated Press – March 13, 2013
WASHINGTON (AP) — Senate Democrats unveiled a largely stand-pat budget Wednesday that calls for $1 trillion in new tax revenues over the coming decade but actually increases spending, while protecting the party's domestic policy priorities and adding $4 trillion more to the national debt than a slashing alternative from House Republicans.
The plan by Budget Committee Chairwoman Patty Murray, D-Wash., blends about $1 trillion in modest cuts to health care providers, the Pentagon, domestic agencies and interest payments on the debt with an equal amount in new revenue claimed by closing tax breaks.
But because Democrats want to restore $1.2 trillion in automatic spending cuts over the same period — cuts imposed by Washington's failure to strike a broader budget pact — Murray's blueprint increases spending slightly when compared with current policies.
On the other side of Capitol Hill, House Budget Committee Republicans barreled ahead with an entirely opposite approach that whacks spending by $4.6 trillion over the coming decade, promises sweeping cuts to Medicaid and domestic agencies while setting a path to balancing the government's books within 10 years.
The House panel was expected to approve the plan, by Chairman Paul Ryan, R-Wis., late Wednesday by a party-line vote; Murray's plan was set to be approved by the Democratic-led Senate panel on Thursday. Both measures face floor debates next week.
Even as Democrats controlling the Senate and the strongly conservative House moved in divergent directions, President Barack Obama again traveled to the Capitol to open a dialogue with lawmakers. Wednesday's meeting was with House Republicans, who welcomed the gesture even as they noted that deep divisions remain.
"We've got a big difference between us," said Rep. Greg Walden, R-Ore. "He supports higher tax revenues."
But Rep. Tom Cole, R-Okla., said Obama told Republicans that he also supports a revised inflation adjustment called "chained CPI" that would curb cost-of-living increases in Social Security benefits and increase tax revenue through slower indexing of income tax brackets. He also supports "means testing" for Medicare benefits that would require higher-income beneficiaries to pay more for their health care.
Cole said Obama told them everyone needs to honestly confront the political barriers to reining in popular benefit programs like Medicare and Social Security. "He said, 'Your people don't want entitlement reform either. Go home and poll them.'"
The White House praised the Senate plan.
"The Senate Democratic budget is a concrete plan that will grow our economy and shrink our deficits in a balanced way, consistent with the president's belief that our economy grows best from the middle out, not the top down," White House press secretary Jay Carney said in a statement late Wednesday.
The debate in the Senate Budget Committee was the first time since 2009 that Democrats in charge of the Senate have advanced a budget blueprint, which opened to predictably poor reviews from the panel's Republicans, who said it's heavy on tax increases and light on cuts to rapidly growing benefit and safety net programs.
"Is it really possible that after four years, the majority has failed to identify any reforms? That all we have is just a tax-and-spend budget that makes no alteration to our dangerous debt course?" said the top Budget Committee Republican, Sen. Jeff Sessions of Alabama. "Does the majority believe the government is perfect and requires no reform?"
At issue is the arcane and partisan congressional budget process, which involves a unique, non-binding measure called a budget resolution. When the process works as designed — which is rarely — budget resolutions have the potential to stake out parameters for follow-up legislation specifying spending and rewriting the complex U.S. tax code.
This year, it's taken as a given that the tea party-driven House and Democratic-led Senate won't be able to resolve their differences absent an agreement driven by the president. Obama has had two failed rounds of talks with House Speaker John Boehner, R-Ohio, and now seems to be looking to the Senate as a potential partner with which to spark a potential breakthrough.
In that context, the rival Murray and Ryan budget plans don't seem to offer a path forward. Even a cursory look at them reveals gaping differences.
Ryan's plan promises to cut the deficit from $845 billion this year to $528 billion in the 2014 budget year that starts in October. The deficit would drop to $125 billion in 2015 and hover pretty much near balance for several years before registering a $7 billion surplus in 2023.
Murray's plan, by contrast, promises a $693 billion deficit in 2014, dropping to the $400 billion range for the middle years of the decade. While large, such deficits would hover just above 2 percent of gross domestic product, a level that many analysts see as economically sustainable.
Democrats warn that the slashing cuts proposed by Ryan would impose austerity that would slam the economy into a tailspin; Republicans counter that reducing the drag that spiraling debt is placing on future generations is critical to long-term economic growth.
Ryan's plan embraces tough new spending levels required under the unpopular, across-the-board spending cuts known as a sequester that began to take effect this month. But in order to protect the Pentagon, Republicans cut even more deeply into the day-to-day operating budgets of domestic agencies next year, slashing them from the $506 billion projected under the 2011 debt and budget pact to $414 billion — an unprecedented 18 percent cut.
Over 10 years, Republicans propose cuts to non-defense agency budgets $895 billion below those envisioned less than two years ago.
House Appropriations Committee Chairman Harold Rogers, R-Ky., responsible for implementing those cuts, is declining comment. The proposed spending cuts, if not changed, are likely to hamstring efforts later this year to advance the annual spending bills for domestic agencies.
Murray's budget, meanwhile, not only preserves the spending "caps" set in the hard-fought 2011 deal but proposes $100 billion in stimulus spending for road and bridge construction, repairing schools, and worker training.
Ryan revives his controversial plan that, starting in 2024 for workers born in 1959 or after, would replace traditional Medicare with a voucher-like government subsidy for people to buy health insurance on the open market. Murray proposes modest cuts to Medicare providers.
Ryan proposes slashing the Medicaid health care program for the poor and disabled by more than $700 billion over 10 years, while Murray would trim it by a negligible $10 billion. Ryan promises to eliminate $1.8 trillion in subsidies in the president's health care law; Murray doesn't touch them.
"There are no sacred cows," Murray said. "We put everything we can on the table, but we do it in a responsible way that preserves, protects and strengthens the programs like Medicare and Medicaid that the American people strongly support."
Associated Press writer Charles Babington contributed to this report.
"Statement on President Obama's Budget Including Social Security Cuts"
April 5, 2013
(Washington, DC) — It has been reported by the New York Times and others that the president's budget will definitely include the chained CPI benefit cut to Social Security and other Medicare benefit cuts. The following are statements from the founding co-directors of Social Security Works and the co-chairs of the Strengthen Social Security Campaign:
Social Security is too important to the economic security of the American people to be used as a bargaining chip. The president's own Secretary of the Treasury and former Director of the Office of Management and Budget has written about the budget, 'The problem is not Social Security; the problem is the mismatch between outlays and revenues in the rest of the budget.' Applying the so-called chained CPI to Social Security cuts the benefits of every single Social Security beneficiary, now and in the future. The very groups who worked the hardest and voted in the highest percentages to re-elect the president -- working families, women, people of color, young Americans -- will be the ones hurt the most by the cuts the president is reportedly including in his budget.
-Nancy Altman, founding co-director of Social Security Works-
Evidently the president either does not understand or does not care how critically important Social Security and Medicare are not just to seniors but to middle aged and younger workers for whom these programs are likely to be even more crucial. What he and other elites call 'tweaks' are deep cuts which will take away the bread and butter of seniors, people with disabilities, children who have lost parents, veterans who have served this nation and others. He promised he would not slash benefits; he has broken his promise to the American people.
-Eric Kingson, co-chair of the Strengthen Social Security Coalition-
Social Security Works is the lead group in the Strengthen Social Security Campaign, a coalition comprised of more than 320 national and state organizations representing more than 50 million Americans from many of the nation’s leading aging, labor, disability, women’s, children, consumer, civil rights and equality organizations.
The inclusion of the chained CPI benefit cut and other Medicare benefit cuts was reported by Jackie Calmes of the New York Times in, "Obama Budget to Include Cuts to Programs in Hopes of Deal."
"Obama Budget to Include Cuts to Programs in Hopes of Deal"
By JACKIE CALMES, The New York Times, April 5, 2013
WASHINGTON — President Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget in an effort to demonstrate his willingness to compromise with Republicans and revive prospects for a long-term deficit-reduction deal, administration officials say.
In a significant shift in fiscal strategy, Mr. Obama on Wednesday will send a budget plan to Capitol Hill that departs from the usual presidential wish list that Republicans typically declare dead on arrival. Instead it will embody the final compromise offer that he made to Speaker John A. Boehner late last year, before Mr. Boehner abandoned negotiations in opposition to the president’s demand for higher taxes from wealthy individuals and some corporations.
Congressional Republicans have dug in against any new tax revenues after higher taxes for the affluent were approved at the start of the year. The administration’s hope is to create cracks in Republicans’ antitax resistance, especially in the Senate, as constituents complain about the across-the-board cuts in military and domestic programs that took effect March 1.
Mr. Obama’s proposed deficit reduction would replace those cuts. And if Republicans continue to resist the president, the White House believes that most Americans will blame them for the fiscal paralysis.
Besides the tax increases that most Republicans continue to oppose, Mr. Obama’s budget will propose a new inflation formula that would have the effect of reducing cost-of-living payments for Social Security benefits, though with financial protections for low-income and very old beneficiaries, administration officials said. The idea, known as chained C.P.I., has infuriated some Democrats and advocacy groups to Mr. Obama’s left, and they have already mobilized in opposition.
As Mr. Obama has before, his budget documents will emphasize that he would support the cost-of-living change, as well as other reductions that Republicans have called for in the popular programs for older Americans, only if Republicans agree to additional taxes on the wealthy and infrastructure investments that the president called for in last year’s offer to Mr. Boehner.
Mr. Obama will propose other spending and tax credit initiatives, including aid for states to make free prekindergarten education available nationwide — a priority outlined in his State of the Union address in February. He will propose to pay for it by raising federal taxes on cigarettes and other tobacco products.
“The president has made clear that he is willing to compromise and do tough things to reduce the deficits, but only in the context of a package like this one that has balance and includes revenues from the wealthiest Americans and that is designed to promote economic growth,” said a senior administration official, who, like others, declined to be identified confirming details about the coming budget.
“That means,” the official added, “that the things like C.P.I. that Republican leaders have pushed hard for will only be accepted if Congressional Republicans are willing to do more on revenues.”
But just this week, Representative Eric Cantor, Republican of Virginia, the House majority leader, reiterated the party’s antitax stance and called for reducing spending by cutting waste and making changes in federal programs. The growth in the so-called entitlement programs, especially for health care, is a main driver behind projections of mounting federal debt as baby boomers age and medical costs rise.
Mr. Obama’s budget was due in February but administration officials said it was delayed by the year-end fiscal negotiations and resulting tax changes. It will arrive on Capitol Hill hours before the president dines on Wednesday evening with a dozen Senate Republicans — his second such parlay in recent weeks.
While the group is likely to also discuss gun-safety and immigration legislation, the timing of Mr. Obama’s budget release is all but certain to make it a prime topic.
Some Senate Republicans have been urging the president to speak out more to Americans about his ideas for reducing the growth of entitlement programs. While the White House posted the offer to Mr. Boehner on its Web site this year, aides previously said that Mr. Obama would not include its provisions in his official budget documents. To do so, some said, would expose him to Democrats’ criticism that he is too quick to compromise and allow Republicans to embrace the proposals for spending cuts, in particular the C.P.I., but ignore those for tax increases.
Neither the president nor senior aides privately hold much hope that Republican leaders — Mr. Boehner and Senator Mitch McConnell of Kentucky, the Senate Republican leader — will compromise. So Mr. Obama’s strategy of reaching out to other Senate Republicans reflects a calculation that enough of them might cut a budget deal with the Democratic Senate majority. If that happens, the reasoning goes, a Senate-passed compromise would put pressure on the House to go along.
According to administration officials, the president’s budget plan would reduce projected annual deficits by $1.8 trillion over 10 years, even with the select spending increases. To offset the initiatives’ cost and avoid adding to deficits, Mr. Obama will propose the tobacco tax increase, a limit of $3 million on how much people can accumulate in tax-preferred savings accounts and repeal of a loophole that allows people to collect both disability and unemployment benefits.
Together with the $2.5 trillion in deficit reductions that Mr. Obama and Congressional Republicans have agreed to since 2010, that would bring the total deficit reduction to more than $4.3 trillion over 10 years by the administration’s computations — just over the goal that both parties have set for stabilizing the growth of the national debt.
The deficit, which for this fiscal year is expected to be equal to 5.5 percent of the size of the economy, as measured by the gross domestic product, would decline to 1.7 percent by 2023, according to officials.
Of the more than $2.5 trillion to date in projected 10-year budget savings, nearly 80 percent would result from spending cuts. The rest would derive from tax increases on high incomes that became law on Jan. 1, in the tax agreement that the two parties reached at year-end when the efforts for a broader deficit-reduction deal collapsed.
Mr. Obama’s proposals to reduce deficits $1.8 trillion more over a decade track his offer to Mr. Boehner, adjusted for the roughly $600 billion in higher taxes that became law in January. He will propose more than $600 billion in new revenues — his last offer had called for $1.2 trillion in taxes — mostly by limiting to 28 percent the deductions that individuals in higher tax brackets can claim. Congress has ignored that idea in past years.
Deficits would be reduced another $930 billion through 2023 as a result of spending cuts and other cost-saving changes to domestic programs, and $200 billion more due to reduced interest payments on the federal debt.
Mr. Obama’s proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.
In Medicare, the savings would mostly come from payments to health care providers, including hospitals and pharmaceutical companies, but Mr. Obama also proposes that higher-income beneficiaries pay more for coverage.
In a Sept. 6, 2008, speech to AARP, Obama said: ‘‘John McCain’s campaign has suggested that the best answer for the growing pressures on Social Security might be to cut cost-of-living adjustments or raise the retirement age. Let me be clear: I will not do either.’’
Source: "Obama seeks deal, proposes cuts to Social Security" By JIM KUHNHENN and ANDREW TAYLOR, Associated Press, April 5, 2013.
April 6, 2013
Re: Obama lied!
I regret voting for and supporting Barack Obama for U.S. President. Obama LIED about his support for Social Security and Veterans benefits. I am a Disabled Veteran. My only source of income is my VA & SSA disability pay. Obama's proposal for a Chained CPI will reduce my VA & SSA benefits by thousands of dollars. I served our nation Honorably. Obama should go after all of the corporations who pay no federal taxes. Obama should end the carried interest tax loophole. Obama should go after all of the wealthy people and corporations who put their millions of dollars in offshore accounts. But Obama is doing none of these things. Instead, he is going after the elderly, the disabled, including Veterans like myself, and survivors. I don't believe Obama is a Democrat because Democrats fight for Social Security, Medicare and Medicaid. If I were U.S. President, I would fight for the poor, working class, children, elderly, and Veterans. I am disappointed in Obama.
- Jonathan A. Melle
April 10, 2013
Re: Obama's budget proposal
I am a Disabled Veteran who served our nation Honorably. I am against President Obama's budget proposal because it reduces my disability benefits from Social Security and Veterans Affairs via the proposed Chained CPI. Please oppose Obama's budget proposal. Thank you.
- Jonathan A. Melle
April 10, 2013
Re: Obama's false promise
Obama promised not to cut Social Security benefits when he ran against John McCain in 2008. He lied for his own political interests. Obama should go after all of the corporations that pay little to no federal taxes. Obama should go after all of the millionaires and corporations that hide their money in offshore accounts. Obama should end the carried interest tax loophole. After Obama apologizes for lying to the American people and enacts all of the tax reforms I noted, then he can tell me he is going to cut my disability benefits I earned as a Disabled Veteran who served our nation Honorably.
- Jonathan Melle
"Social Security benefits to go up by 1.5 percent"
By Stephen Ohlemacher / Associated Press / October 30, 2013
WASHINGTON (AP) — Social Security benefits for nearly 58 million people will increase by 1.5 percent next year, the government announced Wednesday.
The increase is among the smallest since automatic adjustments were adopted in 1975. It is small because consumer prices haven’t gone up much in the past year.
The annual cost-of-living adjustment, or COLA, is based on a government measure of inflation that was released Wednesday morning.
The COLA affects benefits for more than one-fifth of the country. In addition to Social Security payments, it affects benefits for millions of disabled veterans, federal retirees and people who get Supplemental Security Income, the disability program for the poor.
The amount of wages subject to Social Security taxes is also going up. Social Security is funded by a 12.4 percent tax on the first $113,700 in wages earned by a worker, with half paid by employers and the other half withheld from workers’ pay.
The wage threshold will increase to $117,000 next year, the Social Security Administration said. Wages above the threshold are not subject to Social Security taxes.
About 165 million workers pay Social Security taxes. About 10 million earn wages above the threshold, the agency said.
Social Security pays retired workers an average of $1,272 a month. A 1.5 percent raise comes to about $19.
‘‘By providing protection against inflation, the COLA helps beneficiaries of all ages maintain their standard of living, keeping many from falling into poverty,’’ said AARP executive vice president Nancy LeaMond. ‘‘The COLA announced today is vital to millions, but at an average of just $19 per month, it will quickly be consumed by the rising costs of basic needs like food, utilities and health care.’’
The COLA announcement had been scheduled for two weeks ago. It was delayed because the Bureau of Labor Statistics did not issue the inflation report for September during the partial government shutdown.
Since 1975, annual Social Security raises have averaged just over 4 percent. Next year will mark only the seventh time the COLA has been less than 2 percent, including several recent ones. This year’s increase was 1.7 percent. There was no COLA in 2010 or 2011 because inflation was too low.
In some years, part of COLA has been erased by an increase in Medicare Part B premiums, which are deducted automatically from Social Security payments. But Medicare announced Monday that Part B premiums, which cover doctor visits, will stay the same in 2014, at $104.90 a month for most seniors.
By law, the cost-of-living adjustment is based on the consumer price index for urban wage earners and clerical workers, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.
The COLA is calculated by comparing consumer prices in July, August and September each year to prices in the same three months from the previous year. If prices go up over the course of the year, benefits go up, starting with payments delivered in January.
Lower prices for gasoline are helping keep inflation low, said Polina Vlasenko, a research fellow at the American Institute for Economic Research.
The average price of a gallon of regular gasoline has dropped over the past year from $3.53 to about $3.28, according to the automotive club AAA. Overall transportation costs have dropped by 2 percent in the past year, according to the Bureau of Labor Statistics.
Prices for food and beverages have gone up by 1.4 percent, while clothing costs have gone up by 0.7 percent.
Automatic COLAs were adopted so that benefits for people on fixed incomes would keep pace with rising prices. Some advocates for older Americans, however, complain that the COLA sometimes falls short, especially for people with high medical costs.
Over the past year, medical costs went up less than in previous years but still outpaced other consumer prices, rising 2.4 percent, according to the government report. Housing costs went up 2.3 percent.
Associated Press reporter Christopher S. Rugaber contributed to this report.
Follow Stephen Ohlemacher on Twitter at http://twitter.com/stephenatap
Time - Money - RETIREMENT
"The 5 Key Things to Know About Social Security and Medicare"
By Mark Miller, Reuters, July 30, 2014
No need to panic, but both Social Security and Medicare face long-term financial challenges, this year's trustees report finds. There's still time to make fixes.
If you worry about the future of Social Security and Medicare, this is the week to get answers to your questions. The most authoritative annual reports on the long-term health of both programs were issued on Monday, and while the news was mixed, there are reasons to be encouraged about our two most important retirement programs.
Under the Social Security Act, a board of trustees reports annually to Congress on the status and long-term financial prospects of Social Security and Medicare. The reports are prepared by the professional actuaries who have made careers out of managing the numbers and are signed by three cabinet secretaries, the commissioner of Social Security and two publicly appointed trustees—one Republican, one Democrat.
Here are my five key takeaways from this year’s final word on our social insurance programs.
* Imminent collapse nowhere in sight. Social Security and Medicare face long-term financial problems, but there’s no cause for panic about either program.
Social Security’s retirement program is fully funded for the next 19 years. It has $2.8 trillion in reserves, and that figure will rise to $2.9 trillion in 2019, when the surplus funds will begin depleting rapidly as baby boomer retirements accelerate. Although you’ll often hear that Social Security spends more annually than it receives in taxes, the program actually took in $32 billion more than it spent last year, when interest on bond holdings and taxation of benefits are included.
The retirement trust fund will be depleted in 2034, at which point current revenue would be sufficient to pay only 77% of benefits—unless Congress enacts reforms to put the program back into long-term balance.
Medicare’s financial outlook improved a bit compared with last year’s report because of continued low healthcare inflation. The program’s Hospital Insurance trust fund – which finances Medicare Part A — is projected to run dry in 2030, four years later than last year’s forecast and 13 years later than forecast before passage of the Affordable Care Act (ACA).
In 2030, the hospital fund would have enough resources to cover just 85 percent of its expenditures. (Medicare’s other parts —outpatient and prescription drug services — are funded through beneficiary premiums and general revenue, so they don’t have trust funds at risk of running dry.)
Could healthcare inflation take off again? Certainly. Some analysts — and the White House – chalk up the recent cost-containment success to features of the ACA. But clouds on the horizon include higher utilization of healthcare, new medical technology and a doubling of enrollment by 2030 as boomers age.
* Medicare is delivering good pocketbook news. The monthly premium for Medicare Part B (outpatient services) is forecast to stay put at $104.90 for the third consecutive year in 2015. That means the premium won’t take a larger bite out of Social Security checks, and that retirees likely will be able to keep most — if not all — of the expected 1.5% cost-of-living adjustment (COLA) in benefits projected for next year. (Final numbers on Part B premiums and the Social Security COLA won’t be announced until this fall.)
* Social Security Disability Insurance (SSDI) requires immediate attention. The program faces a severe imbalance, and only has resources to pay full benefits only until 2016; if a fix isn’t implemented soon, benefits would be cut by 20 percent for nine million disabled people.
That can be avoided through a reallocation of a small portion of payroll tax revenues from the retirement to the disability program – just enough to keep SSDI going through 2033 while longer-range fixes to both programs are considered. Reallocations have been made at least six times in the past. Let’s get it done.
* Aging Americans aren’t gobbling up the economic pie. Social Security outlays equalled 4.9% of gross domestic product last year and will rise to 6.2% in 2035, when the last baby boomer is retired. Medicare accounted for 3.5% of GDP in 2013; it will be 3.7% of GDP in 2020 and 6.9% in 2088.
* Kicking the can is costly. There’s still time for reasonable fixes for Social Security and Medicare, but the fixes get tougher as we get closer to exhausting the programs’ trust funds. Social Security will need new revenue. Public opinion polls show solid support for gradually eliminating the cap on income subject to payroll taxes (currently $117,000) and gradually raising payroll tax rates on employers and workers, to 7.2% from 6.2%. There’s also strong public support for bolstering benefits for low-income households and beefing up COLAs.
Medicare spending can be reduced without resorting to drastic reforms such as vouchers or higher eligibility ages. Billions could be saved by letting the federal government negotiate discounts on prescription drugs, and stepping up fraud prevention efforts. And an investigative series published earlier this summer by the Center for Public Integrity uncovered needed reforms of the Medicare Advantage program, pointing to “tens of billions of dollars in overcharges and other suspect billings.”
Your move, Congress.
"The Latest on Social Security"
By Richard H. Mootz, CFP®, ParadisePost.com/Business - 2/6/2015
Social Security benefits are increasing 1.7 percent in 2015. This marks the fourth straight yearly cost-of-living adjustment, following a 1.5 percent COLA for 2014.
Next year, the average monthly Social Security payment for a single retiree increases by $22 to $1,328. The average retired couple will get $2,176 per month in 2015 (a $36 monthly increase). A single retiree claiming benefits at the full retirement age of 66 in 2015 could get a maximum monthly Social Security payment of $2,663.
Medicare Part B premiums won’t rise in 2015. They will remain at $104.90 per month for most people. If you’re among the minority of Medicare recipients who buy Part A coverage, you’ll be happy to know that monthly Part A premiums are $19 cheaper in 2015 — they are decreasing to $407. The annual Part B deductible will remain at $147; the Part A deductible will rise from $1,216 to $1,260.
Relatively few Social Security recipients have annual modified adjusted gross incomes in excess of $85,000 (single filers) or $170,000 (joint filers). Unfortunately, if your 2013 MAGI exceeded those applicable thresholds, you will pay total Part B monthly premiums of anywhere from $146.90-$335.70 per month during 2015.
Social Security’s retirement earnings test amounts have also risen. If you receive Social Security benefits and you will be younger than full retirement age at the end of 2015 (i.e., age 62-65), $1 of your benefits will be withheld for every $2 that you earn above $15,720 (the 2014 limit was $15,480). That $15,720 works out to $1,310 a month.
If you receive Social Security benefits and reach full retirement age during 2015 (age 66), then $1 of your benefits will be withheld for every $3 that you earn above $41,880. (That breaks down to $3,490 a month.) Upon turning 66, your Social Security benefits are never reduced because of earned income levels.
As always, part of your Social Security benefits may be taxed. This may happen if you exceed the program’s “combined income” threshold. (Combined income = adjusted gross income + non-taxable interest + 50 percent of Social Security benefits.)
If you are a single filer with a combined income between $25,000-34,000, you may have to pay federal income tax on up to 50 percent of your Social Security benefits in 2015. That also goes for joint filers with combined incomes of $32,000-44,000.
If you are a single filer with a combined income of more than $34,000, you may have to pay federal income tax on up to 85 percent of your 2013 Social Security benefits. Likewise for joint filers whose combined incomes top $44,000.
Those married and filing separately will “probably” have their benefits taxed in 2015, according to the program’s website.
The Social Security wage base is $1,500 higher for 2015. Individual wages up to $118,500 are subject to payroll tax. The Social Security Administration projects that about 10 million workers will see higher taxes in 2015 as a consequence of the change.
What about Social Security’s projected long-range shortfall? Social Security projects that it can tap its combined trust funds of roughly $2.8 trillion to pay 100 percent of scheduled retirement benefits through 2033. Thanks to the aging of the baby boomers, however, it has begun paying out more than it takes in. Social Security’s trustees project annual cash flow deficits averaging $77 billion across 2014-18, which could subsequently increase.
How does Social Security fix that? The simple fix many legislators have suggested is to hike the full retirement age. Right now, it is 66; in 2027, it will be adjusted to 67. A 2014 SSA report notes the potential savings that might result from incremental adjustments. If the full retirement age was gradually raised to 68 during the next six years, that would cut 15 percent from the program’s present deficit. If it gradually raised it to 69 across the next 12 years, Social Security’s long-term shortfall would shrink 35 percent. The boldest suggestion — swiftly taking the full retirement age north to 70 and denying seniors a chance to claim Social Security until age 64 — would reduce the program’s deficit by 48% percent Of course, the social and economic effects of even the less drastic moves could be devastating for many retirees.
Another suggestion would be to radically hike the Social Security wage base to expose 90 percent of earned wages to Social Security taxes; the SSA says that move could reduce the long-range Social Security deficit by 48 percent. Alternately or in conjunction, the payroll tax could be raised from 12.4 percent; taking it up to 15.5 percent could get rid of the long-range shortfall and possibly leave a surplus, the SSA estimates.
Or, Social Security COLAs could be linked to price growth instead of average wage growth — that is, to the “chained” CPI rather than the regular Consumer Price Index. In their above-mentioned 2014 report (which contains 120 ideas for reforming the program), Social Security trustees posit that basing COLAs on chained CPI would cut the long-term deficit by 19 percent. The SSA says COLAs could be 0.3 percent smaller annually if they were based on the chained CPI, which assumes that consumers buy cheaper versions of certain goods and services in the face of rising prices. Senior advocates would prefer COLAs being linked to the experimental CPI-E, an index the Bureau of Labor Statistics uses to track spending patterns of retirees. The CPI-E tends to rise 0.2 percent faster than the regular Consumer Price Index.
What if some of Social Security’s reserves were invested in equities rather than Treasuries? Some economists contend this could have nightmarish results, others praise the idea. The SSA notes that if 40 percent of the Social Security trust funds were directed into equities with an average inflation-adjusted return of 6.4 percent per year — as opposed to special-issue Treasuries with long-term, inflation-adjusted returns of 2.9 percent a year — Social Security’s long-range funding gap would decrease by 21 percent.
Perhaps a fix lies somewhere within these proposals; unmodified or altered, alone or in combination.
How much retirement income do you have these days? With Social Security’s future still surrounded by questions, you may be thinking about where your retirement income will come from in the years ahead. A chat with the financial professional you know and trust may lead to some ideas.
Richard H Mootz, CFP® CERTIFIED FINANCIAL PLANNER™ professional, is a Registered Representative of and offers securities through Securities America, Inc., a Registered Broker/Dealer, member FINRA/SIPC., Advisory Services offered through Securities America Advisors, Inc., A SEC Registered Investment Advisory firm. Mootz Financial Solutions and Securities America Companies are not affiliated.
Richard H Mootz, CFP® CERTIFIED FINANCIAL PLANNER™ professional can be reached at (530) 877-7007 — by e-mail firstname.lastname@example.org or visit the website at www.mootzfinancialsolutions.com Securities America and its advisors do not provide tax or legal advice. Please consult with your tax or legal professional regarding your individual situation. CA Insurance Number 0C75924