Thursday, June 18, 2009

COLA on Social Security – Bye, Bye

If you are sixty-five or older or have other eligibility, you probably have some amount of Social Security which you may rely upon. I once thought the program would be useless but found out I was wrong. It has been a very significant feature of my retirement. In my twelfth year of receiving benefits I have watched the monthly checks grow progressively larger and larger.

This is a result of Cost-of Living increases which have been automatic every year for the last thirty-five years. The COLA increases have been between 1.4% and 5.8% over the last decade. For that period, the monthly check has grown by 37.06%. In a world of gasoline at $2.80 a gallon and steak for $13.00 a pound the additional monies help seniors keep abreast of the economy.

In a recent announcement, the Congressional Budget Office has stated that no COLA increases are anticipated for 2010. You will not, according to present plans, have any need to run to the mailbox in January to see what your “raise” will be. It will be $0.00. In the worst year of the last ten (2003) Bill Clinton presided over the lowest COLA of the decade at 1.4%. The amount is determined by who is in congressional control on July 1 of the previous year. The highest was determined by the Bush administration and amounted to 5.8%. In fairness, the increase is not necessarily a result of partisan political intent. It is affected by the gross national product, debt/surplus, taxation flow to the treasury and of course national price indices

It could loosely be interpreted as a state of the nation. If we have had higher prices and higher revenues and the economy is in a state of good health; we see increased COLAs. In the face of mounting deficits, soaring prices, and substantially decreased revenues for the treasury we see the recommendation of zero increase.

One might say, “well, I’m only forty and this will probably change and besides, I have a stock portfolio (Now we will all take a minute to laugh at the ridiculous assumption in that statement) to keep me cared for in my old age.” That will be fine if you have an appetite for a diet of bacon and beans and want to live in your van down by the river. If you are, however, looking for a reasonably reduced activity and modest comforts in your older years on a fixed income, this latest development will have a crippling affect. But wait; there’s more.

Those persons on Medicare Part B are looking at a substantial increase in the withholding of payments to cover the advancing costs which are deducted from the Social Security monthly payment. Part B, which covers doctor visits and outpatient services are “held harmless” in that the premiums cannot be increased in excess of the COLA, but many who do not have that coverage for various reasons are subject to increased premiums—about 11 million retirees. If the trend repeats in 2011, those 11 million folks will bear the burden of the entire acceleration of program costs.

In May 2007 (the latest figures I have) show the number of people receiving benefits in the US from Social Security is 49,514,000 souls. These include retirees, survivors, dependent children, and the disabled. The greatest portion of that number are registered voters or at the least, eligible to vote. Am I the only one who sees this immense number as a huge threat to the current administration? Fiscal irresponsibility has a price and even the simplest understanding of financial matters will reveal just how foolish this package will become down the road a very short way.

Here, I give a hat tip to the AARP Bulletin (June 2009) for bringing this up. I would link to it but there is no web site apparent. They devoted a little over a quarter page out of thirty-two total to discuss this issue. It is on page 8 of your current copy. Considering their normal hyper-political posture this had to be very difficult for them to report.

It affects me; it likely affects you; it probably affects your mom and dad and it certainly affects your surviving grand parents. Not allowing a 2% COLA payment to that huge number of people will result in a reduced cost of $11,422,000,000. The Congressional Budget Office estimates the 2010 budget at $1,850,000,000,000. Denying the retirees their cost of living allowance will result in lowering that figure by—drum roll please—00.6174%!! Is it worth alienating 25% of the electorate to offset .6% of the deficit? I guess I just don’t understand politicians.

In His abiding love,

Cecil Moon

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