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Social Security COLA Increase vs. Wage Decline or, No Wonder Kids Hate Their Grandparents

Social Security payments are going up in January 2012, one sure sign that a presidential election season is getting underway.

Sixty three million Americans get something from Social Security (either retirement or disability payouts) and many more are living with or related to same. The 3.6 percent increase is the first in two years and will boost average retiree benefits by $39 a month and Supplemental Security income benefits by $18 a month. The increase is roughly in line with consumer price index (CPI), which is up about 3.9 percent this year, though some of the increase for retirees will be eaten by increases in some Medicare premiums.

The last cost-of-living adjustment came in January 2009, when payouts were boosted 5.8 percent, much higher than the normal range of 2.3 percent to 4.1 percent.

So Social Security recipients during the period of 2009-2012 will see their annualized payments increase by at least 2.4 percent. As David Cay Johnston notes in a look at the first official 2010 wage data (culled from the Social Security Administration):

There were fewer jobs and they paid less last year....

The median paycheck -- half made more, half less -- fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999.

The number of Americans with any work fell again last year, down by more than a half million from 2009 to less than 150.4 million.

And Marketwatch reports that  Bureau of Labor Statistics show real weekly wages are down 2 percent over the past 12 months.

In 2003, Cato's Michael Tanner calculated the rate of return on Social Security benefits to folks retiring then at about 2 percent, which stinks for any retirement plan. Worse still, wrote Tanner, "future retirees will receive even lower rates of return." Which is to say, nothing or negative returns. You wouldn't stand for that in a private plan, so why should we stand for it in a forced plan? Better question: Why do we stand for a forced savings plan that systematically robs us of money when we retire? Wouldn't it better to figure out how to help poor people, whether young or old, independent of squeezing us all into a plan that is guaranteed to earn bad returns and then get goosed whenever election season kicks into high gear?

No wonder kids hate their parents and grandparents these days, with the walking on their pants and their baseball caps turned backwards. Take it away, Alan Simpson, a.k.a. "The Enema Man":

 

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  • ||

    My grandparents did the right thing and dropped dead before collecting much SS.

  • Haakon Dahl||

    Nearly shat meself laughing! And here I thought you had an analysis. Well, all's well that ends well.

  • ||

    I like how Nick publishes paycheck data of workers ("The median paycheck...$26,364. That works out to $507 a week") but not SS retirees (avergage "paycheck": $271 a week.) In other words, the "poor" workers are taking home almost double the amount of the "wealthy" retiree's benefit.

  • ||

    The point is there should be means testing. If the retiree has a large pension, large 401K, several homes, etc., why should he/she be getting government handouts.

  • ||

    The means testing should be based on lifetime earnings, however.

  • Suki||

    This is what makes Social Security the best investment government ever made. Perpetuating a kleptocracy through the ballot box.

  • ||

    Isn't it a bit odd to complain on the one hand about the oldsters getting too much, but then on the other about Social Security being a terrible investment?

    The other silly thing is that Alan Simpson actually made those remarks in the service of pushing a plan that means tests Social Security (based on lifetime earnings) a bit, but cutting the formula for those who made money during their life.

  • squarooticus||

    The two are inextricably related: it *is* a terrible investment (by which I mean it has a low yield) which means that the system cannot afford to pay seniors what they have come to expect. I see no inherent contradiction.

  • ||

    It's not an investment. The availability of the money is based off of the average growth in the US economy, plus the changes in the distribution of workers that makes it like a Ponzi scheme.

    Yes, it destroys some wealth through inefficiency, but not enough that the average investment of seniors could be *that* much better.

    The low effective rates for many people are related to the higher effective rates paid to many people (primarily the poor and long-lived, people who only worked precisely 35 years, though those groups are often anti-correlated).

    "Putting the money in the stock market" would not magically create extra returns. The advantage would be in the honesty and not promising things that the benefits couldn't pay for.

    The really poor returns shown in the future are the result of assuming that we'll suddenly make people in the future pay the price for all the Ponzi-like subsidy of people who retired long ago when the program started. In reality we'll probably raise taxes, sadly.

  • ||

    SS never once was used to create wealth, it destroys and redistributes it (namely from the future to the present). So it was both a horrible investment for those dependent on it (in theory properly invested it could have created wealth for retirees greater than what they've gotten back) and the fact that it robs potential wealth from my retirement to pay for the meager returns it gives today.

  • squarooticus||

    Even worse, it assumes there will be enough excess wealth in the future to skim from without people objecting too much. This was apparently true for a long time as the US was growing quickly, but is very unlikely to be so going forward. That's what will really kill it: the load its obligations place on earners will result in old people having their government pensions voted away by those who see the huge line items on their paychecks growing ever larger.

    Raising the retirement age without restructuring it to means-test benefits will effectively kill the program because there won't be enough votes on the receiving end to outnumber the workers voting against it.

  • ||

    nah, because there will be more old folks than workers, the burden will increase on the worker to meet the demands of the old folks.

  • ||

    Social Security was a great investment. The reason it's a horrible investment now is because it's always promised to be a Madoff-style better investment than was possible, and it paid out TOO MUCH to those earlier retirees.

    This was obscured by demographics. It made it look like Social Security was "in surplus" when it was really in actuarial deficit. That's why they keep having to raise the taxes for it.

  • ||

    So it was both a horrible investment for those dependent on it (in theory properly invested it could have created wealth for retirees greater than what they've gotten back)

    No.

    Look at the graph from the post. Anyone who had started receiving Social Security in the 1990s or earlier has a very good deal. (Those are real rates of return.)

    It was a really good investment for those people. That really good investment was paid partially out of demographics. The rest of us are paying for that now.

    If Social Security were actually a crappy investment for its whole history, it wouldn't be in financial trouble even when crediting it the "Trust Fund", but it is.

    The real rate of return of long term Treasury bonds-- which is what the "Trust Fund" uses, is high enough to make a decent investment. Yet even crediting that, Social Security is unsustainable.

    That must mean that, overall, benefits are promised that exceed that long term treasury real rate of return.

  • ||

    Combined with the fact that earlier retirees got even more amazing rates of return, thus consuming principal-- but that's not something that could be fixed by making the program breakeven. Making it breakeven would have meant paying out even more to the demographically advantaged earlier cohort.

  • ||

    Anyone who had started receiving Social Security in the 1990s or earlier has a very good deal.

    And you can damn well bet that any means testing will exclude these recipients.

    Means testing is a 100% stupid idea because it is an attempt to prolong a horrible idea. I'd rather be cut off 100% for no goddamn reason and be told about it now so I can plan accordingly while I still have time to work around it than to perpetuate this fraud any more on future generations.

  • ||

    I think it's the irony of the thing: the young folks hear about the COLA and think, "...fuck, I haven't gotten a raise in five years!", and the old folks (the ones who have nothing but SS) think, "...fuck, how do I live on this?".

    But we're supposed to see SS as a great success of FDR. Heh.

  • ||

    Isn't it a bit odd to complain on the one hand about the oldsters getting too much,

    This complaint arises from the overall expense of the program, and the lack of means testing.

    but then on the other about Social Security being a terrible investment?

    This complaint arises, in part at least, from the fact that SocSec revenues have been skimmed off to pay for other government programs. If SocSec had been run strictly on a breakeven basis, the rate of return would be higher, after all.

    And both of these arise from the underlying fact that SocSec is a government program that has been used and abused by politicians to fund other activities and to buy votes.

    So, no, no contradiction at all. You will get both "too expensive" and "bad return" inevitably with a program run politically, not financially/economically by fiduciaries.

  • ||

    This complaint arises, in part at least, from the fact that SocSec revenues have been skimmed off to pay for other government programs. If SocSec had been run strictly on a breakeven basis, the rate of return would be higher, after all.

    Except not really. If it had been run strictly on a breakeven basis, it would be even more of a Ponzi scheme and it would be even more of a crappy investment for future workers than it is now.

    It would have been a much better deal for people who have been retired for a while, though.

  • ||

    This complaint arises, in part at least, from the fact that SocSec revenues have been skimmed off to pay for other government programs. If SocSec had been run strictly on a breakeven basis, the rate of return would be higher, after all.

    No, no, no!

    If Social Security had been run on a strictly breakeven basis, then earlier retirees would have gotten an even better deal than the enormous returns that they got (as seen in the graph here.) The real rates of return for people born in 1935 and earlier and getting Social Security before 2000 are really quite fantastic. If we didn't "skim off the money," their returns would be even better.

    "Skimming off the money" is actually, by comparison, good for future retirees.

    The best thing to have done would have been private accounts, but *only* so that the money wasn't spent on useless government spending. But a breakeven basis would have been worse.

  • ||

    This is exactly why I told my mom that she will be kept in a vegetative state if it comes to that because I want to get my money back and her collecting SS is the only way.

  • ||

    I don't think those complaints are incompatible. The point is that SS sucks all around, regardless of what one believes its purpose is. If it's supposed to be a welfare program then it sucks because, for the most part, it takes money from poorer people and gives it to wealthier people--a sort of reverse Robin Hood. If you harbor the delusion that it is a retirement program then it sucks because the return on your payments is so low. Because it sucks all around it needs to be dumped. And we as a country need to decide whether we want a welfare program for old people, and proceed accordingly.

  • ||

    it takes money from poorer people and gives it to wealthier people

    How "wealthy" are they?

    Total Income for Households Age 65 and Older in the U.S.

    Under $5,000 (2.4 percent)
    $5,000 to $9,999 (7.7 percent)
    $10,000 to $14,999 (13.3 percent)
    $15,000 to $19,999 (11.4 percent)
    $20,000 to $24,999 (9.3 percent)
    $25,000 to $34,999 (15 percent)
    $35,000 to $49,999 (13.7 percent)
    $50,000 to $74,999 (11.9 percent)
    $75,000 to $99,999 (6 percent)
    $100,000 and over (9.3 percent)

    Source: Census Bureau, 2007.

  • ||

    Income =/= wealth.

  • ||

    Yes but property, sales, and use taxes apply regardless of income.

    Fuck the goddamn COLA. Retirees should get this increase because their fucking TAXES are going up, not prices.

  • ||

    Thanks Nick for making that point. I would also add that young people are trying to buy a first home, perhaps provide for one or more children, pay off student loans, etc etc. Contrast that to retirees who have no legal dependents, whose houses are usually paid for, don't have student loans etc.

  • ||

    At one time your retirees were young themselves and did have dependents, did have mortgages, did have student loans. Did they bitch about it or face their obligations like mature adults?

  • ||

    Well I guess they all handled it in their own way. When current retirees were young, most of them did not have to go tens (or hundreds) of thousands of dollars into debt to get an education, nor was an average home priced out of most people's reach.

    If Warren Buffet worked hard and paid all his bills when he was young does that mean the govt. should take money from a young family with a mortgage and student loans and give the money to Warren?

  • ||

    Debate fail. Better luck next time.

  • ||

    The valedictorian of my law school class honestly believed that if you didn't give SSI recipients their colas, you were cutting their benefits.

    Fuck I hate liberals.

  • ||

    my bank is in for a real talking to then!

  • ||

    Shit but I REALLY REALLY hate liberal lawyers.

  • ||

    Government-caused inflation does in fact cause a "cut" in government-created benefits. COLAs are a government-created means of addressing the loss of value of government benefits due to inflation. Not a difficult concept to grasp.

  • ||

    Except that Social Security payments are supposed to go up based on the average wage increasing, not based on inflation. Seniors just complain and get a COLA when inflation goes up.

  • ||

    When average wages increase faster than inflation (which is most normal years), the seniors get an increase based on wage increases.

    When average wages fall or stagnate, Social Security never falls and the seniors often agitate enough to get a COLA.

    They're winning either way. It's unfair.

  • ||

    We can starve leviathan, we can overfeed it, or we can let it bankrupt itself.

    Instead we're bitching about ways to SAVE leviathan. Seems silly to me.

  • Fist of Etiquette||

    The 3.6 percent increase is the first in two years and will boost average retiree benefits by $39 a month and Supplemental Security income benefits by $18 a month.

    More money for seniors? Maybe this means Werther's Originals can open an additional factory and Detroit can bring back the Oldsmobile. The economy is about to turn a corner! (Its blinker has been on for several blocks now.)

  • ||

    There will probably be a big market for pants that come up to one's chest.

  • ||

    This will probably have to be reported several times before they'll hear about it.

  • ||

    Ask my parents,they payed in and deserve a raise each year.It's 'their money'.They retired 17 years ago and may have already recieved more that they paid in.Their home is paid off,so's their car and my father has a pension.They have few bills and live well,and have paid no income since 1994 and bitch about the rich and corps making too much money.

  • ||

    They sound like lovely folks. Too bad about their lack of perspective.

  • ||

    not really

  • ||

    I fucking hate these sorts of people. True story... I was working at a social security law firm as a paralegal. One of these cocksuckers came in. He was getting a pension and getting social security retirement. He want to explore the idea of getting social security disability because he was impotent or his back or something.

  • ||

    It's hilarious how so-called "libertarians" manage to fall into the same class-warfare trap as OWS hippies.

  • ||

    Fuck old people....and I take it you need fucked really hard.

    http://www.girlschase.com/cont.....g-tell-you

  • ||

    The fuck they haven't paid income taxes. SS benefits are taxed. And they pay plenty of property and sales taxes, all of which have increased in rate.

    Y'all sound like Tony the troll when you say these people haven't "earned" their money and should have it taken away.

    Look, it's a shitty system. Argue about ways to KILL it not about ways to SAVE it.

  • ||

    TNTAAFL, bitches.

  • squarooticus||

    "TANSTAAFL". Pronounce it tan-staffel and you'll never forget it.

  • ||

    A means test based on lifetime earnings is preferable to one based on "what assets do you have today?"
    I know far too many people who made more than me, lived high on the hog, and now complain they have little or nothing saved to supplement their social security in retirement. T.S., you didn't have to join the golf club and vacation in Europe and the Carribbean every year.

  • ||

    Yes, this is certainly true. Any means test should be based on lifetime earnings, which is available to the Social Security Administration.

  • ||

    The average monthly Social Security benefit for a retired worker was about $1,177 at the beginning of 2011. Let the good times roll!

  • ||

    It's a cliche to point it out, but it really is too bad that the boomers were so selfish that they were willing to put the burden of their spending on my generation. Even those of us under 30 who are lucky enough to have good jobs are comforted by the likelihood that the Dow will perform like the Nikkei has.

  • ||

    It's a cliche to point it out

    Not only a cliche, but incorrect. SS became law about 12 years before the first "boomer" was born. Medicare and Medicaid became law before the first "boomers" were eligible to vote. If you're looking for class warfare, you're shopping in the wrong generation.

  • ||

    Even Signore Ponzi knew you cannot get away with raising the "rate of return" when the supply of new suckers is falling.

  • Nike Dunk Shoes||

    thanks

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