Save Social Security Now and Protect our Retirement

With millions of Americans going to the polls during the next few weeks, it is important for all of us to ask our candidates how they stand on preserving Social Security and Medicare.  These issues are of paramount importance to retirees and people who hope to retire in the coming years.  Fortunately, there are specific steps which Congress could take to boost and protect Social Security, according to the National Committee to Preserve Social Security and Medicare, a non-partisan organization which promotes workable solutions to preserve Social Security indefinitely.  Their suggestions are listed below.

If you are dependent on Social Security or expect to be collecting benefits in coming years, you will want to ask your candidates how they stand on these issues and then vote in a way which will protect your financial security now and in the future.

How to Boost Social Security Now and Preserve It in the Future

1.  Congress could gradually eliminate the cap on Social Security payroll contributions.  Currently, only the first $118,500 in wages are subject to Social Security payroll withholding.  Gradually lifting this cap would solve almost all of the problems we have with the future insolvency of the Social Security Trust Fund.

2.  The Social Security Administration could slowly increase the payroll contribution rate by 1/20th of one percent over the next 20 years, so that after 20 years it will only have been increased by one percent.  This will help strengthen Social Security for our children and grandchildren.

3.  Slightly boost contributions to Social Security by treating all salary reduction plans the same.  This means that payroll taxes would be collected on the money which goes into flexible spending accounting, HSAs, or dependent care plans, just as it on 401(k)s.

4.  Boost the current basic benefit for all current and future retirees by $50 to $70 a month.  This may not seem like much, but many Social Security beneficiaries did not see a meaningful increase in their benefits for several of the past few years.  This would help the millions of Americans who depend on Social Security for all or most of their retirement income.

5.  Give Social Security credits to unpaid caregivers.  Currently, people who have been out of the workforce to care for young children, elderly parents, or disabled family members are never able to catch up for the years they lost while out of the workforce.  As a result, they receive significantly less in Social Security benefits when they reach retirement age.  Providing these unpaid caregivers with five years of Social Security credits could help boost their benefits and protect caregivers from poverty in their later years.

6.  Use a better calculation for Social Security's annual cost of living adjustment.  Currently, the Social Security Administration uses the CPI-W, which is based on the spending habits of urban wage earners.  However, it would be more fair to switch to the CPI-E, which is based on the spending habits of the elderly, who spend more on certain expenses such as medical care.  This would make it easier for senior citizens to keep pace with inflation.  We especially DO NOT want the chained-CPI which would be the worst possible choice for senior citizens and would cause even more of them to fall into poverty.

Ask Candidates About Other Issues of Importance to Retirees

If you attend a candidate forum or town hall meeting, which I hope you will, other questions you will want to ask the candidates are about Medicare and Medicaid.  You may also want to read last week's blog post titled, "Vote for Lower Prescription Drug Prices." which explains how Congress could lower the cost of our prescriptions with a few changes to the law.  Also ask your candidates about the following important issues:

* Do you want to expand Medicaid or do the opposite and make it more difficult to qualify for it?
* Do you want to protect people with pre-existing conditions from losing their insurance?
* Do you believe in the "age tax" which is when consumers pay higher insurance rates based on their age?

In addition, you may want to ask them about other retirement questions such as:

* Do you believe in improving automatic retirement savings programs for people who do not have a 401(k) available to them through their jobs?
* How do you feel about taxation of retirement income and Social Security?
* What do you think should be done to strengthen pension funds?
* What can be done to protect senior citizens from being victims of fraud and scams? 

Several of the above issues, especially those regarding Medicare, Medicaid, and Social Security, will probably be dealt with simultaneously in one package deal.  As a result, it is important to ask the candidates of both parties in your area how they plan to deal with these problems.  The more you know, the easier it will be to make an informed decision when you vote.

Rather than voting based on a political party, vote to protect the programs which you will depend on during your retirement.  In other words, vote for your self-interest and to protect the senior citizens in your family. That is a perfectly reasonable and legitimate reason to decide how you will vote, rather than automatically voting for one party or the other.  In addition, follow up with your Senators and representatives after the election to make sure they continue to work towards keeping their promises! 

One way to follow what your members of Congress are doing is to follow a non-partisan site like Countable.us, which will send you daily updates on votes being taken in Congress and will let your know how your Senator and the representative from your district voted.  It is a free and easy way to stay informed about issues important to you.

You can get more information about the issues, register to vote, or apply for an absentee ballot at:  votingtool.aarp.org

You can also learn more about important issues at:  countable.us, votesmart.org, RealClearPolitics.com, Ballotpedia.org and PolitiFact.com.

Learn more about preserving Social Security and Medicare at:  https://www.ncpssm.org/ 

If you would like more information about Medicare, Social Security, common medical problems as you age, financial planning, where to retire, travel and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

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Social Security Cost of Living Increases Under a Chained CPI

Since 1975, Social Security beneficiaries have received automatic annual COLA's or cost-of-living adjustments.  These were set up so that our benefits would increase every year in which there was inflation.  Over the decades, COLA's have protected millions of retirees from losing their ability to survive on their benefits plus, ideally, their retirement savings and/or a pension.

Historically, the cost-of-living adjustments have amounted to as much as 14.3% in 1980 down to 0% in both 2010 and 2011.  In 2013, the COLA was only 1.7%.  The amount of the increase each year has traditionally been based on the Consumer Price Index (CPI-W) for the year preceding the increase.  For the average Social Security beneficiary who was receiving $1,240 in 2012, the 1.7% increase raised the amount they were receiving to $1,261 a month. 

The Consumer Price Index that has been used to calculate the size of the of COLA's is based on the prices paid by urban consumers for a specific list of goods and services.  The inflation calculation that has been used in the past is the CPI-W, which is based on goods and services used by urban American workers.  This has been criticized because some advocates for the elderly believe that the CPI-E (or Consumer Price Index for the Elderly) should be used instead.  It relies more heavily on expenses commonly incurred by senior citizens, such as rising health care costs.  However, CPI-W has been used instead, although it is a less generous indicator of inflation.

Now, however, Congress is seriously considering replacing the CPI-W with the even less generous chained CPI.  According to many advocates for seniors, including AARP, this will effectively be the same as a net benefit cut for retirees, as well as for disabled Veterans, who would also see their COLA adjustments change.

President Nixon signed the Social Security COLA law into effect in 1972.  Since then, cost of living increases have been legally mandated whenever the CPI indicates that there has been measurable inflation.  During the past four years, however, the TOTAL cost-of-living increases have only amounted to less than 6%.  Despite this, there is a good chance that future COLA's will be even smaller, should the chained CPI replace the CPI-W as a measure of calculating inflation.

What is the difference between the traditional CPI-W and the chained CPI?  The CPI-W is a formula that measures changes in the cost of items that workers typically purchase.  A chained CPI assumes that, when prices for an item go up, people will substitute less expensive items.  For example, if beef prices rise people will eat more chicken; therefore, they will not actually be spending more money.  This means that the size of the Social Security cost-of-living adjustments do not need to be as large.

At first the difference in the cost-of-living adjustments may not seem to be very much, perhaps just $44 less annually during the first year.  However, the amount of lost revenue continues to compound annually.  For example, AARP estimates that a typical Social Security recipient who is receiving $20,000 a year when he retires at age 65, by age 70 will have lost $662 in cumulative benefits under a chained CPI than they would have earned under a CPI-W.  By age 80, they will have received $5,248 less; and by age 90 they will have lost $14,076 in cumulative payments.

Remember, the CPI-W is already less generous than the CPI-E which many advocates for seniors believe we should be using instead.  To go from a CPI-W to a chained CPI could be devastating for the majority of seniors who will continue to fall behind inflation during the portion of their lives when they may be facing high expenses for medical and personal care.  By the time seniors have been retired 15 or 20 years, very few of them are able to work and recoup the amount of income they are losing to inflation. 

If we Baby Boomers allow this change in the way our future cost-of-living increases are calculated, we could face a very difficult time during our retirement years.  ARRP suggests that everyone who is concerned about this issue write to the President, your Senators and your U.S. Representatives before this change becomes law.

If you wish to see how these changes could affect you personally, use the AARP calculator at http://www.aarp.org/whatyoulose

Resources:

http://www.ssa.gov/cola/automatic-cola.htm
http://www.ssa.gov/pressoffice/pr/2013cola-pr.html
http://www.ssa.gov/pressoffice/factsheets/colafacts2013.htm
http://www.bls.gov/cpi/
http://news.firedoglake.com/2012/10/16/social-security-cola-increase-for-2013-1-7/
http://www.aarp.org/politics-society/advocacy/info-02-2013/the-chained-consumer-price-index-explained.html

If you are interested in reading more about retirement planning, check out the index articles listed below.  Each one contains some general information as well as links to other articles on that topic.

Gifts, Travel and Family Relationships

Great Places for Boomers to Retire Overseas

Great Places to Retire in the United States

Health and Medical Topics for Baby Boomers

Money and Financial Planning for Retirement

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