Tuesday, October 20, 2009

Yet Another Government Insult to Retirement Incomes

by Nilus Mattive 10-20-09
Retirees are rightfully angry about Social
Security’s inability to hand them realistic
cost-of-living increases.
Washington recently issued another piece of official bad news — Social Security recipients won’t be getting one single penny in cost-of-living increases next year.

The news wasn’t entirely a surprise. And, sure, President Obama has asked Congress to send out another one-time payment of $250 to more than 50 million seniors as a little relief (emphasis on “little”).

But whatever way you slice it, this Social Security snafu highlights two simple facts that we all need torecognize,no matter what stage of life we’re in …

First, the Social Security system is flawed on MANY levels.

Second, we should only depend on our private investments to truly sustain us in our golden years.

I’ll talk more about two steps you can take for higher income in a moment. First, let’s start with my initial assertion …

Four Reasons Social Security Is Completely Flawed

Reason #1: A pay-as-you-go structure. [What is this Social Security Trust Fund we keep hearing about?] emphases mine. I’ve talked about it before, but it’s worth repeating … Social Security’s pay-as-you-go structure is essentially a giant ponzi scheme.

Ostensibly, we’re all paying into our “own” retirement futures every time money gets siphoned out of our paychecks and into the government kitty.

But realistically, our future payments depend on future workers. And that means something has to expand indefinitely — either the workforce or the tax rate. Otherwise, future benefits are going to have to shrink in some way, shape, or form.

Reason #2: Rising life expectancies. Don’t get me wrong … I’m glad we all stand a good chance of living longer, healthier, more productive lives than the generations of yore. But the side effect for Social Security is additional strain.

Remember, Social Security was designed in the 1930s, when people lived to an average age of 60. Today, the average American is hitting 76!

The end result is another strike against the system’s ability to pay out promised benefits to millions of Americans based on current inflows.

Reason #3: A markedly expanded coverage universe. When Social Security started, it covered about half of the U.S. population. Entire swaths of workers were not promised benefits.

But today, nearly all workers are covered by the program. In the event of injury, they usually qualify for disability. In the event of their death, their spouses — and possibly their children — receive benefits.

Plus, as one reader pointed out on my blog a few months ago:

“Please go to the federal budget for 2008, look at the social security section, and see for yourself that SS going broke has less to do with seniors collecting benefits, and more to do with people UNDER retirement benefit age collecting money each month.

“Examples of programs include; payments to unwed mothers, WIC program, disability benefits to anyone at any age for most any injury, funding for drug treatment centers, tuition dollars for re-training workers, the list goes on and on. Don’t misunderstand, these are great programs, but they don’t belong under SS.”

His point is well taken. There’s no question that many of Social Security’s expanded responsibilities help Americans who are down on their luck. But this broader coverage also comes with a huge price tag and adds to an already struggling system.

Reason #4: Skewed cost-of-living adjustments. Since 1950, Social Security has adjusted recipients’ checks for inflation. The current method, adopted in 1972, uses the change in Consumer Price Index (CPI) from July through September vs. the same period a year earlier.

Let’s ignore the fact that it doesn’t compare a complete year, which is a flaw in and of itself as far as I’m concerned.

Instead, let’s focus on the fact that the CPI itself is an imperfect indicator of the inflation that you and I feel in our daily lives. FULL STORY

1 comment:

R. George Dunn said...

To say that there has not been inflation during the past year means you are either to rich to notice or a blatant liar.