Friday, October 14, 2005

Hmmmm...What to Make of This

AP News Alert:
WASHINGTON (AP) The government says that Social Security benefits for more than 48 million Americans will increase by 4.1 percent next year, the biggest increase since 1991.
I never got around to doing any real serious Social Security research, so I really don't know if this is as good a thing as it sounds or not. Anybody have an learned opinion?

11:25AM Update

I'd like to enter in to the permenant record, the comments of Bizzy:
This increase occurred because of something that usually isn't so obvious. SocSec increases are pegged to increases in the earnings of those who are still working and NOT inflation. So if the average worker is getting pay increases that beat inflation, as as obviously been the case in the 12 months the SocSec administration used as the basis, the increase will be greater that inflation.

It brings out two points:
- The average worker isn't falling behind as is so often claimed.
- Social Security recipients' increases not only enable them to keep up with inflation, they have historically done MORE than that. Whether that is a reasonable expectation of a Social Security retiree is, in my opinion, very debatable.
Now, I ask the question: should Social Security be granting increases above the rate of inflation? No wonder there is a shortage of funding...

Mark's Remarks


Matt, this is why Social Security is called the deadly rail of American Politics. By statute, this increase is required. The President cannot just cancel it. It requires a new law to be cancelled. And we saw what even the suggestion of modifying SS did: mass hysteria. And yes, it was indeed a so called Republican who did this. Something else to thank liberals for, though, as they had a lot of control: more spending overruns. Yet another reason to change the system. However, it requires political and moral courage, something I am not sure those inside the Beltway have, even those with an R after their names, or in this case, especially those with R's after their names.

10/15 Update

Bizzy self-corrects via email:
When I saw what the increase was, I figured it HAD to be wages vs.
inflation, and that wages had beaten inflation--Wrong.

The fact is that INITIAL BENEFITS are calculated using wage inflation, but that once benefits are determined, they go up by price inflation every year (defined as CPI-W instead of the CPI-U that is usually reported, but inflation nevertheless). It may be that CPI-W has outpaced CPI-U over the years, but I don't know--this year CPI-W was the 4.1% SocSec used, and 4.7% was the CPI-U, which is what threw me off in the first place.

The point about benefits being higher than they would be using normal inflation applies to the INITIAL BENEFIT. The logic of the arguing against using wage inflation as the basis for the INITIAL BENEFIT is nowhere near as persuasive. It's reasonable to say that a person should get a benefit at retirement based on the standard of living in effect at retirement, not the average standard of living during the 40 years or so they were working. This is why the "progressive indexing"
advocated by the president is and will be hotly contested, as it represents a REAL reduction in the ultimate initial benefit for those affected by it. I believe the gains from being able to invest some of the money in individual accounts will offset the losses from progressive indexing, but you can see why people would dispute that.

The fact that wages have been rising faster than inflation over the long haul (but not this past year, thanks to energy costs, remains irrefutable.

IOW, I was wrong, which I would chalk up to travel fatigue I guess and seeing a number I would not have expected as the reported increase, but wrong nevertheless.

Separately, seniors would probably hotly dispute this contention, but I will make it anyway (and it's only a contention): Except for those directly affected by higher costs for prescription drugs and nursing home care, I believe that inflation for quite a few seniors, especially for those who own their own homes (usually paid off), is lower than inflation for the rest of the population. Thus, they are financially better off with next year's increase than they were during this year.
Among other things, they are lower consumers of energy (they drive less).
It's still Greek to me, man... :) But thanks for the update!