Sunday, August 23, 2009

Claiming the Social Security Benefits Will Fall

Stephen Ohlemacher must be out to scare people with Millions face shrinking Social Security payments:

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 ... Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels ... All beneficiaries received a 5.8 percent increase in January, the largest since 1982.

The Social Security Administration states:

Beginning in 1975, Social Security started automatic annual cost-of-living adjustments. The change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index (CPI-W) ... Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2007 through the third quarter of 2008, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 5.8 percent COLA for 2009.

CPI-W is the Consumer Price Index for Urban Wage Earners and Clerical Workers – if one is interested in how this index has behaved of late, check this out. When prices rose, nominal benefits also rose so as to keep real benefits the same. In the last year, this price index has declined and appears to be expected to decline for a while. So with unchanged nominal benefits – wouldn’t a better title be real benefits are expected to increase?

Ohlemacher may have a point if the relative price of premiums for the Medicare prescription drug program increases substantially but by his own account, the extra premiums do not appear dramatic enough to justify his scare title.


gordon said...

Is there something wrong with the link? It seems to go nowhere.

Rdan said...

All three links work now....the drumbeat of social security doom keeps on being financed. Good catch...

Shag from Brookline said...

Just turned 79 and even with no COLA for a couple years, I can still enjoy a Hires Root Beer - or a long-neck Corona.

Bruce Webb said...

My Mom is 83 and could use the money. And I have friends on SS DI so I don't begrudge anyone the large bump they got last year. On the other hand it was based on an expectation of energy costs that were not in fact sustained, in effect everyone on Social Security got an extra year or so of COLA in advance.

Well good on 'em. But if your contract says you should get a raise of 2.5% this year and 2.5% next year and they screw up and give you 5.0% all at once you just thank your stars that there is no clawback for the extra in the first year.

If things had gone bad in ways that some people feared the premature 5.8% increase would have buffered Social Security recipients for the duration of the recession/depression, as it is they got a few more bucks in 2009 and maybe 2010. Big whoop, as far as I am concerned they got $2.5 trillion in the bank. As long as they don't take it all before I retire in 2023 I'm okay with a little extra take. said...

I agree with Bruce Webb on this.