Monday, October 19, 2015

What, No Raise This Year?!

Americans seem to be able to complain about almost anything.  In 1975 when inflation was out of control, Congress decided that instead of trying to adjust Social Security to meet each new increase, they would pass a law providing a Cost of Living Adjustment (COLA) to be calculated each year in the fall for implementation at the New Year.  Prices, as tracked by one consumer price index (CPI-W), would be the benchmark.  If prices went up from year to year, Social Security would be increased according to a set formula.  If they went down or stayed the same, there would be no change.  That seems simple enough – and generous, considering there would only be an increase or no change but never a cut. 

This Fox News article, which is almost identical to a CNN article released the same day, begins:  “For just the third time in 40 years, millions of Social Security recipients, disabled veterans and federal retirees can expect no increase in benefits next year.”  The reason of course is that prices did not go up; the CPI-W will be flat or even down from last year.  The culprit, if there is blame to be assigned, is a drop in gasoline prices.  No inflation means no raise.

They go on to tell how terrible this is going to be for seniors and others who depend on Social Security.  Some complain that the CPI-W reflects the spending of younger workers and is not representative of the spending of older adults or other Social Security recipients.  The reduction in gasoline will not offset the increase in medical costs, which are usually more of an issue for all Social Security recipients.  One advocacy group wants the designated CPI changed, but oil prices have come down so far this time that it would probably not make any difference.

On top of that many people have Medicare premiums deducted from their Social Security checks and depend on that annual increase to pay for the any increase in Medicare premiums.  “When that doesn't happen, a long-standing federal ‘hold harmless’ law protects the majority [about 70%] of beneficiaries from having their Social Security payments reduced,” and many of the rest are the high-income folks.  Still, that leaves not a lot to gripe about.

Of course, social media is abuzz.  Republicans want to blame it on Obama (since the only two other times this has happened were 2010 and 2011).  Democrats imply that inaction by the Republican Congress is to blame.  A favorite whipping boy, big oil gets blamed because it’s mainly the fault of lower gas prices (how crazy is that?)!

Get a grip!  It’s a formula, not dependent on a policy change or new law.  Lower gas prices are a good thing affecting the price of food, clothing and everything else that’s moved by truck or train.  The formula didn’t provide an increase this time, but inflation is not a smooth line and it’s likely the drop this year leaves more room for an increase sometime in the future.  Furthermore, Social Security was never intended to be the sole source of income for retirees.

In true news media fashion though, this article and the CNN article and several more came out two full days before the final announcement in an obvious attempt to get everyone in a panic as soon as possible.  Expectations of getting an increase (no matter what) have been set.  Instead of complaining, most retirees should remember 1975 when inflation was out of control and mortgage interest was near 10%.  But we aren’t grateful for the lack of inflation; we are too busy complaining about no annual increase for those of us on a fixed (?) income!

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