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On October 15th, 2009, a day that will live in infamy, the Social Security Security Administration announced that recipients would not get a cost of living adjustment (COLA) for the first time in 35 years. The adjustment, which is based on a measure of inflation for urban workers (CPI-W), is critical for the tens of millions that receive Social Security.
In addition to the zero increase for 2010, the Congressional Budget Office (CBO) forecasts no increase for 2011. While a couple percent increase, which for most recipients is less than $40 a month, doesn’t seem like much to you, not getting it can be excruciating for those who are on a fixed income. Many seniors are used to living cheap out of necessity, but for many of them that missing $40 can sting. And regardless of the recent CPI figure, they're seeing real price increases for the majority of their expenditures.
Social Security is the sole source of income for 15% of seniors and 70% of retirees depend on it for more than half their income. If that’s not bad enough, those numbers are likely to rise for a number of demographic and economic reasons.
For one thing, these statistics do not take into account regional factors. In a state like Idaho, for example, the number of retirees that are totally dependent on Social Security is closer to 25%. It’s an agrarian state with little manufacturing and that probably accounts for why many Idahoan retirees don’t receive pensions. Another thing about Social Security payments is that, unlike wages, they don’t take into account the local cost of living. Whether you’re living in San Francisco or a small hamlet in Alabama, social security payments are based on your life time earnings and a national cost of living adjustment.
The other worrisome trend is that many Baby Boomers are already starting to sign up for their benefits. Contrary to the conventional wisdom, as unemployment and underemployment rates rise, more laid off seniors might be tempted to start collecting their benefits earlier than anticipated. Yet another problem with these Boomer retirees is that a good number of them will be retiring with little or no assets and a smaller percentage of them will have pensions. The last generation of retirees was the richest in American history partly because they were more likely to have stayed with a company that had defined pension plans. They were also more inclined to save some of their incomes - a totally alien concept to an unhealthy percentage of Boomers.
Now, here’s another demographic reality that few take into account. The average boomer had fewer kids or no kids at all. I suspect that a lot of poorer social security recipients are currently getting a little help from Danny boy. The problem with the coming wave of retirees is that they don’t have a Danny boy or they’re still helping the little rascal come up with a down payment for a studio condo. Even those who chose to have children - had them later in life. So, even if Danny boy might want help out dear old pop, chances are he’s at a point in his career where he’s barely making it himself.
The current crop of social security recipients had pretty rational consumption habits. Not so for the Baby Boomers. Just the fact that many of them are retiring with so little, after a life of making so much, tells you we’re going to see a mega trend where millions of our senior citizens will be forced to endure poverty. They won’t only have less coming in; they won’t have a clue how to stretch it.
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