Seniors and their Social Security

It’s hard not to feel for seniors in their plight to make ends meet every month in this era of freakishly low interest rates and inflation that, purportedly, is almost as low.

Our health insurance premiums have gone up by almost 20 percent per year in recent years (through no fault of our own - I can’t imagine what they’d be if there was something wrong with us), so, I wouldn’t be surprised to learn that the government’s official measure of health care costs, an increase of 4.5 percent  from a year ago as detailed here earlier, understate the actual increases that seniors see.

Well, the Social Security Administration announced today that seniors will get a 1.7 percent cost-of-living adjustment starting in January and, while this is surely better than no increase at all (a common feature in many pension plans), since seniors don’t buy near enough of the stuff where prices are falling (e.g., electronics), the average increase of $21 a month will fall short of the actual increase in their expenses.

The realities of some senior’s finances are presented in this CNN/Money story today:

Janis Mason is 94 and has been receiving Social Security benefits for nearly 30 years. Because she has outlived her savings, the monthly checks are her only source of income.

“I always cross my fingers that the money can last the whole month,” Mason said.

“We’re grateful for any small increase [in Social Security benefits], but believe me, any small increase doesn’t begin to cover the major increases we’re seeing in things like vegetables, fruits, bread and milk,” said Mason.

Part of the problem is a disconnect between the official inflation figure and what seniors actually pay, experts and seniors say.

The inflation number used to calculate the cost of living adjustment is based on spending patterns among workers of all ages and across hundreds of items. A more accurate calculation would put more weight on the items that seniors purchase most frequently — like food, gas and medical care, according to the American Institute for Economic Research.

“Some months I worry a check might reach the bank before my Social Security check is deposited on the 3rd,” she said. “Other months I might have something left over - lots depends on whether I treat myself to something special at the grocery store, had an emergency, or even bought something to wear.”

What’s maddening about this is that social security benefits are likely to be reduced by the use of a different inflation measure that - surprise! - results in a lower rate of inflation. Sadly, this is one of the few budget related issues that seems to have support from both Republicans and Democrats.

A couple years ago, when inflation in the U.K. was about five percent, the Telegraph calculated a more realistic inflation rate for “pensioners” was close to ten percent. If the U.S. is going to adopt a new, lower cost-of-living adjustment, they should at least change the name to properly reflect what it is accomplishing, say, to something like, PCOLA - Partial Cost of Living Adjustment.