There were no big surprises in the 2010 Trustees Report for the Social Security system that finally emerged in early August. Once again and for the 3rd year running, the report was not signed by any public trustees. The report finds that a social security deficit is looming out there in the future, as payments to retiring baby boomers outmatch contributions from younger workers. And most important for the millions of retirees who are already collecting social security, it appears that for the second year in a row it is very unlikely that there will be any cost of living increase (COLA) paid for 2011. According to the way the COLA’s are calculated, the cost of living hasn’t gone up since 2008.
Currently income into and interest from the Social Security trust funds exceeds payments to beneficiaries. However that trend will change in the next few years, and by 2025, taxes and interest will fall short of annual benefit payments. At the point the government will be required to draw down trust fund assets to meet benefit payments. The real problem comes in 2037, when the fund becomes exhausted. At that point if nothing changes, the trust will only be able to pay 78% of currently legislated benefits. A minor piece of good news: at 1.92%, Social Security’s 75-year deficit is slightly lower than that reported a year ago.
Source: Social Security’s Financial Outlook: The 2010 Update in Perspective by the Center for Retirement Research at Boston College.
Support for New Retirement Cost of Living Index – CPI-E – Grows
Many people believe that it costs more to be an elderly person than to be a younger person, and that there should be a more realistic way to measure inflation for retirees. “Social Security’s Bind: How to Measure Inflation” in Smart Money gives a most informative rundown on this issue.
The Bureau of Labor Statistics, which publishes the CPI-U and CPI-W, began calculating a consumer price index for the elderly, the experimental CPI-E, in 1987. It is clear that if the government replaced current cost of living indexes with the CPI-E, social security payments would be higher today. The elder cost of living index gives more weight to health care costs, although it does presume seniors pay less for many goods and services, thanks to senior discounts. The problem with the CPI-E is that it would add to social security’s financial problems, a major reason why it is not in use to calculate social security increases. Read the Smart Money article to learn more.
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