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Should retirees get raises?

Under a formula in place since the 1970s, Social Security recipients likely won't get an increase for the second straight year. Is that fair?

By Karen Datko Oct 12, 2010 7:48PM

For the second year in a row, it looks as if Social Security recipients won't get a cost-of-living raise next year.

 

"How can that be?" you're probably wondering. Answer: The cost of living hasn't gone up -- enough.

Whether seniors can expect an increase will be announced later this week, but numerous reports say the monthly benefits will remain where they are for 2011. The same occurred for 2010. (The Social Security trustees predicted this in 2009, so it should not be surprising.)

 

How can this be? A year without an increase, let alone two in a row, hasn't happened in at least 30 years. And we all know the prices of basics like food and medical care are rising. Post continues after video.

Blame it on the summer of 2008 when the price of gasoline soared above $4 a gallon. Since the cost-of-living adjustment is based on a comparison of third-quarter prices year to year, that short-lived spike prompted a 5.8% increase in monthly benefits for all of 2009 -- the highest cost-of-living adjustment in nearly 30 years. (Seems the only other folks who got a raise that year were Wall Street execs, and you know they're not settling for a pay freeze. Far from it, in fact.)

 

The Associated Press further explains:

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.

So, should seniors and other recipients get a raise anyway?

 

Many people think they should. Just one tiny example: A reader poll at NOLA.com (the website of the Times-Picayune in New Orleans) showed that just over 80% picked "Yes; those on Social Security deserve some increase regardless of the formulas." I was one of the 15.8% who selected "No; the formulas in place should be followed," but nearly changed my mind. (More on that thinking below.)

 

What do you think? Here are some facts to help you form an opinion.

  • About 53.5 million Americans get Social Security benefits -- including about 34 million retired workers. The rest are disabled people and eligible family members of retired, deceased or disabled workers.
  • The average monthly Social Security check for a retiree is $1,171. (The maximum possible benefit for a 66-year-old worker retiring this year is $2,346.) You can find the averages for other recipients here.
  • How important is the income to retirees? Here's what a Social Security Administration Web page says:
  • Social Security benefits represent about 40% of the income of the elderly.
  • Among elderly Social Security beneficiaries, 52% of married couples and 72% of unmarried persons receive 50% or more of their income from Social Security.
  • Among elderly Social Security beneficiaries, 20% of married couples and about 41% of unmarried persons rely on Social Security for 90% or more of their income.
  • The cost-of-living formula, in place since the mid-'70s, gives seniors an increase after the cost of living has gone up, but doesn't cut their benefits when it declines.
  • Inflation is measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers, which includes the price of food, gasoline and other basics. The index, Janet Novack explained at Forbes, was 215.5 in that $4-plus-gasoline summer of '08. It fell and has now inched up to about 214.

How about health care? Yes, costs overall are going up, but -- and it's a small "but" -- most Medicare recipients won't see an increase in Medicare Part B premiums. Novack also explained how that works.

 

Bonus for high-income earners: Also as a result of the stagnant Social Security benefits, the maximum amount of income subject to Social Security taxes -- $106,000 -- won't increase next year.

 

Many seniors are upset about the recent news. After so many years, they've come to feel an increase is automatic, or that they're entitled, perhaps. Compounding their anxiety, many seniors have watched their nest eggs shrink -- that's a biggie, no doubt -- and the value of their homes may have dropped -- just as it has for many of the rest of us.

 

But how many seniors are really in need? The official poverty rate for seniors last year was 8.9%, the lowest rate of all age groups. (The poverty line was $10,289 for an individual and $12,982 for a couple.) A revised formula by the National Academy of Sciences, which includes rising health care costs, would put it closer to 18.6%, an AP story said.

 

Aren't those the people we should worry about?

 

Some seniors who are better off are willing to do without a benefit increase. "One thing depends on the other and when people aren't working there's not enough people feeding into the Social Security system," 86-year-old Stella Wehrly told the AP.

Bless her heart. The SSA page also says:

  • 52% of current workers have no private pension plans.
  • 31% have saved nothing for retirement.
  • "By 2035, there will be almost twice as many older Americans as today -- from 40.7 million today to 76.3 million." That's a lot of older folks counting on that monthly check.

What will happen next? Social Security recipients got a $250 check in 2009 as part of the economic stimulus (in addition to that 5.8% raise), but Congress rejected President Obama's request for a similar payment for 2010. Legislation has been introduced to revive the bonus for next year.

 

Or maybe we should let it be.

 

Economist Daniel Hamermesh, who reportedly will turn 67 this month, opined on The New York Times' Freakonomics blog:

Stories on the Web are talking about how unhappy recipients will be to not get an increase, especially because the CPI rose about 1% over the past 12 months. Of course, I didn't hear any complaints from recipients in 2009, when their benefits remained unchanged while the CPI dropped; nor was there any complaint when benefits were "over-indexed" between 2007 and 2008. This is a classic illustration of asymmetry in perception -- "what's mine is mine, what's yours is negotiable."

More from MSN Money:

21Comments
Jan 11, 2011 4:24PM
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The meager cost of living increases really don't amount to much anyway. It only a slow death by starvation.Life is like a game of poker in order to stay ahead you always have to have an ace in the hole.I have stayed ahead of the game since retiring twenty years ago by buying dividend paying stocks from extra money out of my checkbook.I had my modest home mortgage free, and have kept my living expenses to a minimum.I have increased my income considerably without the social security increases which only amounted to the higher cost of food.Today i have a good income,but it didn't all come from S.S. But i have to admit I retired from a medical institution with good insurance and have fairly good health after a heart attack and bypass surgery twenty years ago. You can't depend on the government,you have to have a little incentive of your own. I spent very little traveling,eating out and very little time sitting around with others playing games. You get absolutely nowhere depending on others. Especially the government. 
Dec 9, 2010 12:26PM
avatar

There is no SS trust fund.  You can't write yourself an IOU and call it an asset without calling it a liability.  Having gov. debt as an asset, when you ARE part of the government means you have nothing.  You owe yourself.  So it doesn't matter how much there is in the "trust fund."  It is money already spent, so the funds need to come from current taxes. 

That sounds like a disaster waiting to happen, more than social "security."  That is insecurity.  Any collapse in the tax base, or rise in interest rates or many other scenarios would put the millions who depend on SS in a very insecure position.

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