Social Security and Inflation

We “Greedy Geezers” will not be getting an increase in our monthly Social Security benefit payments in January, because the CPI is still below what it was in 2008. Stories on the Web are talking about how unhappy recipients will be to not get an increase, especially because the CPI rose about 1 percent 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.” Proposals to give a special $250 increase this year to recipients are politicians’ sop to this perception bias.

Wouldn’t the country be better off if politicians explained why the current system makes sense rather than catering to people’s mis-perceptions? Or if they were honest and modified the system to allow for benefit cuts when the CPI drops? (Fat chance of that!)

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COMMENTS: 26


  1. JMP says:

    Just out of curiosity, what percentage of those complaining about not getting increases in their Social Security payments have participated in Tea Party rallies? Moreover, what percentage of Tea Party participants that receive Social Security are upset about the lack of increase?

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  2. Bill Pruett says:

    Since I am a “greedy geezer” the issue of the COLA is of interest. The problem is one of perception. Members of Congress, staffs and other Government employees will enjoy salary increases, but not Social Security recipients. That’s bad PR. Regardless of the statistics, we know that the cost of the things we buy are increasing yearly. We also believe that politicians have contrived to adopt a system of COLA which keeps us away from more monthly benefits. True or not, that’s the perception and most any politician will tell you that politics is in perception not statistics

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  3. Dr. Abdullah A. siddiqui says:

    Indices and averages provide convenient guidelines for business and commerce, but they do not always tell the whole story. When the income of the rich goes up and the income of the toiling masses go down as happened during the Dubya era, the average gives you misleading info.
    In the current bad economic times, there are asymmetrical changes in prices of commodities. Prices of medicines which retired folks use have gone up in prices, while some other commodities which retired folks use sparingly, have gone down in prices. , For such folks CPI becomes meaningless.A Government of the people, for the people and by the people should consider asymmetry of price changes, before making such bif decisions as the social security benefits.

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  4. Jeff says:

    1) Yes we would be better off explaining things instead of catering to mis-perceptions.

    2) Social Security is currently indexed on average wages, not the CPI.

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  5. Jake says:

    Confusion, as usual. Social Security benefits are “indexed” to average wages, meaning an adjustment over a very long time that accounts for changes in average standard of living during a person’s working life. Aberage wages are NOT used to determine annual COLAs. Annual COLAs are based on the CPI. As Dr. Siddiqui correctly notes, the CPI is a lousy proxy for the cost of living to a retiree.

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  6. Stephen Tolbert says:

    The posts on this blog so far demonstrate the degree to which it will be politically difficult to address the long-run solvency of Social Security.

    Yes, there are instances where the goods that matter to many seniors rise in price when prices are falling, in general. For instance, the price of drugs may be rising while the price of housing (many seniors live in paid off homes) is falling. However, is the solution to provide additional payments to seniors when the program is already on a path to insolvency? Not if the intent is to preserve the program.

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  7. Ian Kemmish says:

    Up until June of this year we in the UK had a Prime Minister who favoured technical explanations of why the public were wrong over sops to public opinion. I believe that opinion polls showed him to be the most unpopular PM since polls began.

    The country doesn’t want to be better off. Especially if that means having to listen to lectures.

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  8. J. Gravelle says:

    Using their own reasoning, the Democrats have actually CUT Social Security:
    http://gravelle.us/content/democrats-cut-social-security-2011
    …for the SECOND year in a row.

    The good news is, that they DID manage to find over $20 million to “spread around” to their voter base, namely the dead and incarcerated felons:
    http://www.dailyscoff.com/?p=2722

    Hey, if I thought my career was dying and I was probably going to prison, I might do the same thing…

    -jjg

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  9. jimbino says:

    Given that abolishing SS is politically impossible, the best way to eliminate the misery that is SS is to freeze its benefits and let inflation kill it off eventually.

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  10. Drill-Baby-Drill Drill Team says:

    We complain about low subsidy checks. But the BIG benefit everyone is overlooking is the absolute low PRICE INFLATION which borders on DEFLATION. COLA doesn’t increase your buying power; it just simply compensates for inflation.

    Prices are not going up but plummeting especially for some products. In this recession I saw an 80% Off Sale! You can buy an iPhone for $99! Ten years ago, a billionaire like Bill Gates, could not afford such a device.

    Try living in a hyperinflation enviorment…your blood pressure would go through the roof! We have it pretty good despite all our gripes. ;)

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  11. DQKennard says:

    Try to convince people the cost of living hasn’t gone up. Yeah, sure. It’s clear and obvious to almost everyone (whether correct or not in any given case) that the cost of living has gone up — dramatically so for some things.

    The various CPI numbers don’t give a good picture of the economy, let alone present a good basis on which to hang a COLA.

    It’s even worse of an indicator for seniors, likely have a “basket” of goods and services that differs considerably from that on which the CPI is based.

    You haven’t bought a car in years? Oh, well that’s an important part of the CPI, and that’s listed as going down, in part because of genuine decrease, but in part because of the way the numbers are adjusted for “improvement” and substitution. That car didn’t *really* go up in price; you got *more* vehicle capability for the money!

    You spend most of your money on healthcare? That’s not included to anything like the percentage seen in seniors’ typical spending. Energy costs are up. Is the COLA indexed to a CPI that excludes energy?

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  12. George says:

    Social Security is 6.4% of a person’s income matched by the employer with another 6.4% (certain limits apply). I find it upsetting that the government taxes the employee on their Social Security wages. You have to pay tax on the money you are paying them. When you’re on social security and you earn income they tax it when they give it back to you! If you have saved in a 401K plan 9or IRA) and receive social security, your money is taxed at the highest other income rate (be financial planners haven’t told you about that).

    So far, social security has been a milk cow for the US government. It has paid for itself and funded 2.5 trillion to the federal government. Now that the Federal government has to pay some of that back, there’s a bunch of crying that social security is insolvent. No, the Federal Government is insolvent. They have been bilking us all along.

    I’m 50 years old and have paid in enough money to buy a house. I can’t collect on the social security until I 67 and they are talking about raising the age of eligibility.

    You bet I go to Tea Party Rallies and support Tea Party candidates.

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  13. CJ Rosenberger says:

    I’m happy that the Congress, Senate and federal workers will get raises in 2011. However, I would like them to know that my mother and father live on a total of $1,600 per month in social security payments.

    Yes, isn’t it wonderful that the USA takes care of it’s senior citizens so well. Of course I am being facetious. We all now how hard the Congress and the Senate work, especially when it comes to working with the lobbyists so that great laws benefiting US citizens can be put into action Oh, sorry I’m being facetious again. Well I just don’t know what is wrong with me. My apologies to anyone I may have offended. I think I may just be tired, considering I have to work two jobs so that I can help my rich parents put food on their table.

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  14. Gary says:

    Your last paragraph is way too wordy. I think you can cut it to:

    “Wouldn’t the country be better off if politicians … were honest…?”

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  15. Joshua Gamen says:

    inflation will cripple us too. They don’t have an answer, just a scheme.

    http://joshuagamen.wordpress.com/2010/10/13/competition-towards-disaster/

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  16. John says:

    Others have said it, but the point needs to be repeated — it’s not at all clear that the overall CPI represents the prices paid by people on Social Security.

    Of course even if it did, the point of this post would probably still be valid — people would still object to a cut in benefits even if the prices they actually pay on the stuff they buy were falling. Just another reason to avoid deflation.

    On the larger topic of whether social security should even exist at all — I think that it should, and that we should view it as payback to a previous generation for the public investments that were made with their tax dollars (not just their social security tax dollars — all their tax dollars). But we need to make sure that those public investments are made wisely. Government programs should be evaluated to make sure they actually work, and “work” should mean that they ultimately contribute to economic growth. Unbeknownst to most people, government programs actually are evaluated more frequently now than they were a generation ago. But we still have a long way to go in making sure that *all* government spending is evaluated for effectiveness and in making sure that the evaluations themselves are rigorous, objective, and focused on the right outcomes. This can be done, and progress is being made. We just need to keep moving in the right direction.

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  17. L. F. File says:

    Seems to make sense but when the CPI drops or is even flat the economy needs stimulus. Why would you not provide more income it to the very people that will almost certainly spend it?

    lff

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  18. Hamed says:

    Agree with many of the previous points, although I’d add:

    The biggest reason that politicians are so keen to offer ‘sops’ such as the one-off payment to pensioners, is because they are so much more likely to vote than any other age group. Decisions are made by those who turn up, and people my age (29) are more likely to stay home (or go to the pub) on election day.

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  19. Frank J Pastore says:

    The CPI formula for SS recipients is a big joke. Isn’t it true that congress passed legislation to automatically get raises every January? Social Security is not a government handout. I paid into that fund for over fifty years, that is our money. If past presidents and congresses would stop stealing that money there would be no Social Security problems. Just pass legislation for a Senior Citizen CPI so we can recieve our COLA’s every year.

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  20. I wonder says:

    I wonder whether a little blunt communication would help. I’m imagining something like adding a paragraph like, “Because the recession reduced wages, the baseline index went DOWN this year. If we counted this downturn, your check would be rightfully $28.14 LESS every month this year. However, Congress said not to remove money from your check, as it might cause a hardship for some recipients. Amounts will not rise again until the index has gone up by more than enough to offset this extra $28.14 overpayment — which may take several years.”

    If we’d done this in 2008, nobody would be “surprised” by this now.

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  21. Lawrence Clarke says:

    What is the explanation for removing food and fuel prices from the COLA calculation???

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  22. tateofpa says:

    Wow it will be there for another 35 years, great I’m 50 so I will get my SS. My kids I told them that they would get theirs when they retired, I just didn’t tell them that they will have to work till they were 90+ before they can retire. You know that those without kids should have to work longer, because they didn’t plan like I did for retirement by having kids to take our place, for the government to tax.

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  23. luigi remus says:

    I would like the editors to explain how adjustments to SS benefits are calculated. CPI? COLA? Food and fuel are in or out? Why? If your salary goes down and/or SS benefits stay the same while your bread, milk and gas go up are you better off?
    The editors could make a major contribution to education by contributing their comments.

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  24. tateofpa says:

    I would bet that it is more libs complaining.

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  25. Dea says:

    You know everyone complains about money being spent on the senior citizens, did you look how much the government is paying itself? how much the congressmen and house members and their friends in businesses get through state contracts? if there really isn’t any money left how about all you congressmen and representatives say, “you know don’t pay me a cent for the next 4 years. i got enough to make ends met lets help out those who don’t.” and also why don’t we not just stop at the pay, lets make them pay for their own health insurance, and their traveling and their food, etc. if the reason that they are paid is so they would be less likely to take bribes, that is a faulty idea, because no matter how much you pay them there will always be room for more money to take.

    as far as SS benefits, there is something wrong with the system if a person who worked all their lives still needs a part time job to make ends meet even with full benefits from SS.

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  26. semi homeless mba says:

    Several large counties across US are experiencing unprecedented increases in the number of unclaimed deceased – apparently because more people simply cannot afford to bury or cremate their loved ones. The phenomenon has increased costs for local governments, which have to dispose of the bodies.
    The Los Angeles County coroner’s office has seen a surge in the number of bodies that are not claimed by families for cremation or burial because of economic hardship, according to the Los Angeles Times.
    The coroner’s office in Clark County, Nev., which includes Las Vegas, saw a 27% increase in burials and cremations of unclaimed bodies this year…
    So it looks like even the dead are getting bailouts in America.

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