Question about social security cost of living raises.

[Elessar Zappa]

Why is the cola based on the amount of SS that each person gets? Wouldn’t it make more sense for it to be a flat amount for everyone? The cost of food, gas, etc. isn’t based on income, it’s the same for everyone. To me, it would make more sense for everyone to get, for example, a $200 raise. What’s wrong with that reasoning?

Edit: For instance my dad’s social security is $910/monthly. If he gets a 3.2% increase, that’s a $29 increase, not near enough to make up for the increased costs this year.

[Shermann]

1. Social Security recipients basically fall into three buckets

Last edited Sat Oct 14, 2023, 04:44 PM - Edit history (1)

It all depends on where your average indexed monthly earnings fall in relation to two bend points. Bucket #1 is essentially a sweetheart deal that you could never get from a private investment, Bucket #2 is more or less a fair deal, and Bucket #3 is a raw deal that few would voluntarily choose over private investments.

So, the argument hinges on making the sweetheart deals a little sweeter by making the raw deals a little rawer.

[Captain Zero]

5. Based on your reported earnings over last 36 years

That determines your starting amount when you get on social security.

After that everyone gets the same percentage increase each year, if there is an increase. That seems fair to me.

Working for cash when young and not getting it reported on taxes and to social security screws more people than the formulas or the percentage increases.

A word to the wise is sufficient. 🦉

[Ms. Toad]

12. Yes and no.

My sister will never get all of the SS benefits she is entitled to based on her income because much of her income was tips which were never reported. So she will get the SS benefit commensurate with her reported, not actual, income.

BUT - she reported more than minimum wage. So those who reported all of their minimum wage income will be getting the same identical amount - and same limited COLA - as she does.

So yes, people who work for cash (entirely - or in unreported tips) means they are voluntarily choosing to accept lower social security benefits when they retire - and they deserve the lower COLAs for the same reason they deserve a lower base income. (Note: many of these people are unaware that they are making a choice that not only impacts their current income - but also their future income.)

But punishing those people who were cheating the system because they didn't report all of their earnings also punishes those who were working that exact same income and reporte all of it. And that is unfair because it perpetuates the poverty in which they were forced to live during their working years.

[Joinfortmill]

16. Folks are only 'entitled' to benefits based on the income they reported.

If you don't report income, you also don't pay taxes on them. That's just the two sides of the tips coin (I worked as a waitress in another life).

[Shermann]

19. Again it's all about the buckets

You want to report enough income that you max out Bucket 1. Bucket 2 doesn't really matter much, and if you are into Bucket 3 you want to hide as much income as possible.

Literally 0% of 20-somethings are going to take this into account and are going to opt for the cash in hand. It would require a crystal ball to execute perfectly anyway, how is one to know if they will be a high earner or low earner later in their career?

[Ms. Toad]

30. My point is that the buckets don't distinguish between

Those earning only minimum wage via an employer who reports all of their income - and will never be able to save anything to supplement their retirement income v. those who report only income which can be tracked in order to keep the maximum amount now - who may well be earning a substantial amount of money they can save to provide for their own retirement.

While I don't have a problem granting a less than average COLA to those who were gaming the system, unfortunately it also hurts those who are receiving less than average retirement income because even reporting 100% of their income, their income-based retirement is inadequate to meet their needs. Low income people spend far more of their income to meet their basic needs - so a percent of income increase hits them harder than those with a higher income.

The COLA should be adjusted to take into account a minimum survival income - and the COLA for anyone whose income is below that should receive at least the average $$ COLA.

[Shermann]

31. SS was intended to be a supplement and not a retiree's only income

I don't think it can really be anything but that without a fundamental redesign.

[SickOfTheOnePct]

33. Exactly

Huge refactoring and most likely unaffordable

[Ms. Toad]

35. For people who earned minimum wage for most of their lives, it is frequently the only income.

As long as that is true, those legitimately on the low end - because that is all they were able to earn - ought not be punished because some people abuse the system by not reporting all their income.

You started by suggesting it was justified because people are gaming the system. I'm not willing to indiscriminately punish every low income earner because some of those receiving minimal social security are cheats, rather than low income workers.

[Shermann]

36. Supplement or safety net?

Both terms are bandied about when describing Social Security, but I believe "supplement" characterizes the way it is structured better. "Safety net" may characterize the original hopes for the system. It can be both of those things, but as a safety net there are certainly some holes that you can fall through. Most get a benefit proportional to what they pay in OASDI taxes, with the notable exception of windfall buckets like spousal benefits and disability. It sounds like you are proposing another type of windfall bucket.

Although perhaps not optimal, I don't believe "punitive" best characterizes any of the current rules.

[Ms. Toad]

43. I am addressing the reality, not the intent.

For minimum wage earners, SS is often the only source of income in retirement.

You suggested that people were choosing to work in a cash economy so you were just fine with them getting a lower $$ increase. My point is that for the majority of people receiving the lowest amount of SS income it was not a choice. To be fair to those individuals, who are spending all of their income just to live, a percent increase does not provide enough to live on - and that it ought not be structured that way based on the assumption that it is fair because folks in that bucket chose not to report all of their income during their working lives.

[Shermann]

44. I haven't stated what I am fine with or am not fine with

I've merely stated what the situation is at a high level.

I did run through a scenario on post #39 that I believe is revealing. This type of teardown is rarely done, however I've run through countless financial simulations in order to better understand. There are pundits everywhere who claim to have the answers who haven't done the work as I have.

[Shermann]

15. That's what average indexed monthly earnings means

Although it is the max 35 years, not necessarily the last 35.

[Rebl2]

24. I was

encouraged by a rheumatologist when I was twenty to get on SS disability in 1980 because I was not doing well. I had worked just enough quarters to qualify. I continued to work part time until I could no longer do so. As of now I get $700 a month after the part B is taken out.

[3Hotdogs]

2. Not an answer to your question. But I have collected $286,600 (net) from SS, since I retired.

-- I retired 7 years ago.

[captain queeg]

3. I hear you but I can see a few reasons why it won't happen.

#1 would be increased costs. They are having trouble just trying to keep it solvent for the future. The other thing is that people have paid I’m varying amounts and we’d get a lot of people offended that newer retirees are getting a better deal. The rethugs love this kind of thinking, turning the lower income folks against each other. For myself I’m just glad it’s still operative. If I was a young worker today I’d be concerned I could pay into it for years and then benefits get slashed as they get older.

[Elessar Zappa]

4. I see your point.

I wish there was a politically feasible way to give everyone a substantial raise due to the last three years of inflation. Of course that would mean increased taxes.

[Captain Zero]

7. Which the rich could pay if

We taxed them an equal amount for what they donate to conservative PACs.

[Fiendish Thingy]

10. They gave a substantial raise last year- the biggest in the history of SS, IIRC

Nearly 10%

[Elessar Zappa]

13. That's true but it's still not all that much if you're check is $900 like my dad's.

Don’t get me wrong, he’s grateful he even has it all. Maybe there should be at least a one time increase across the board for a few hundred dollars and then continue with the cola system they have now.

[Fiendish Thingy]

21. Here in Canada they have three systems

CPP: like SS, based on amount paid in and years worked
OAS: everyone over 65 is eligible to receive, regardless of previous work status. Amount depends on number of years lived in Canada, maxes out around $700CAD/mo. Once you reach a certain income level ($80k/yr?) a percentage is clawed back, and after a certain income ($120k/yr) you get nothing.
GIS: guaranteed income supplement for low income seniors, maxes out around $400?

CPP is raised by a COLA% each year, the others have their max benefit raised by a set amount.

It’s a decent three tier safety net, but not designed to be one’s sole sources of retirement income.

[MOMFUDSKI]

6. The bigger question is why is there a

cap on what one pays in? The $$$ bucket for SS would be overflowing. The cap is a sick joke

[Captain Zero]

8. Oh that too, yes.

[Silent Type]

25. One reason is that benefits are also capped. One day we'll likely see

a special assessment on wealthy or higher incomes, but you’ll never see the cap removed.

Another reason for that is if we get another 15% or so out of wealthy, we’ll need it for healthcare, jobs, education, climate change, child care, infrastructure, all the wars heating up, deficit and debt reduction, and much more.

[Shermann]

37. Maybe in a second Biden term we'll get the donut hole in the maximum taxable earnings

Biden has to thread the needle and increase Social Security payroll taxes without raising taxes on households making less than $400,000 / year.

If you are at or near the cap for much of your working career, most if not all of every additional dollar you contribute will get redistributed to those making less. I'm not sure if that's paying a fair share or not, not everyone in that category is a billionaire.

[Fiendish Thingy]

9. A flat amount would skew the entire benefit system

Benefits are calculated based on amount contributed and years worked. To suddenly say “everyone gets the same COLA amount” would create a grossly unfair and unequal benefit system.

I don’t understand why that’s not obvious to everyone.

[Elessar Zappa]

14. I do understand what you're saying.

[doc03]

17. It's obvious to me. nt

[Frasier Balzov]

11. The math must assume he was almost getting by on $910/mo during the previous year.

If he was, then a percentage-based CPI should logically be sufficient.

But was he? It seems like it must have been a struggle all along, ever since he started receiving benefits.

The other consideration, of course, is whether 3.2 percent accurately reflects the increased costs of an average American.

I don't think it does. People who keep a diary of their costs know this and have the proof.

[Mr.Bill]

18. Apparently the SS COLA is decided by

a committee of people that have not been to a grocery store or a gas station in the past year.

[Shermann]

20. The "committee" is the Bureau of Labor Statistics

https://www.ssa.gov/oact/STATS/cpiw.html

There is a fair amount of rigor that goes into this, although it has been argued that the R-CPI-E index should be used instead (the Consumer Price Index for Americans 62 years of age and older).

[Mr.Bill]

22. You really took me seriously?

Okay.

[Shermann]

23. It's a talking point that you hear ALL the time, so yes. nt

[slightlv]

32. Or otherwise lived as an older person lives.

Our dollars, beyond those spent on basics like energy, water, rent/mortgage, etc., or things most younger people don't need and are never considered when they figure the COLA. Things like medical equipment, supplemental help... both health-wise and just physical help around the house. I left off medications from that list because hopefully what Biden is doing is going to help more and more of us as time goes by. But I do know a lot of our discretionary income goes to meds for both of us. I don't see that changing.. only growing worse as we grow older.

Yes, I know SS was not meant to be the end-all, be-all in retirement. But face it, the game changed in the 1980's when pensions went the way of steady, life-long jobs. Two (or more) low end paychecks to make ends meet each month while you're working don't add up to much when it comes to Social Security retirement checks. We late boomers are paying the price now. The ones who come after us are going to pay it worse than even we are now. I'm trying now to impress this on my daughter. The system *is* going to have to be reconfigured. And that damnable cap is going to have to come off. Just as the injustice of "earned income" being taxed higher than "unearned income"... thus demeaning the "sweat by your brow" type work they always seem to glorify in campaign ads. IF we can defeat the damned evangelicals and republicans who seem to relish everyone but them suffering, we might be able to do it with a UBI, as has been successfully tried in other countries. But how much else good proved in other countries ever dribbles down into our laws? (sigh) Again, those who live for cruelty must be beaten back under the rocks from which they climbed. YMMV.

[llmart]

26. The people who really get shafted are women.

The ones who stayed home and raised kids or if they didn't do that worked at jobs where they made a whole lot less than men.

[Shermann]

27. Stay-at-home spouses (man or woman) can get the sweetest deal of all

The catch is they have to earn at least 40 Social Security credits to qualify for benefits. This can easily be accomplished during a very short part-time career. Once they have that, they can qualify for up to 50% of the primary earner's benefit (called an auxiliary benefit). This will transition to a survivor's benefit if that spouse perishes, so it is for life. The best part is there is no additional up-front cost or reduction in benefits to the primary earner for this valuable spousal benefit. It is sort of a freebie.

[DFW]

29. My wife got something like that, though nowhere near 50% of my benefit

She gets something like 25% of my benefit, but she has never worked in the USA and is not a US citizen. Still, her German version of Social Security/pension sucks (about €1200 a month, taxable), so it is a serious supplement, percentage-wise. It took a year for my SS application to go through (I applied when I turned 70 last year, and I have been working uninterrupted since I was 23), but I finally got it this year. The US Embassy in Poland, of all people, pointed out that my wife was eligible for the spousal benefit. We didn‘t have the slightest idea that there was such a thing. We had to make a special trip to the US consulate in Frankfurt to complete the paperwork, but it finally went through.

The biggest benefit of this whole bureaucratic mish-mosh is that my wife gets German Medicare, which is very comprehensive. No 80% of this or 85% of that. Pretty much 100% of everything is covered, and since she has had cancer twice—and beaten it twice—we are always prepared to hear about the next round. I only have US Blue Cross, which, in practical terms, means I have no medical insurance at all. The German government takes big taxes, but, in my case, offers nothing in return. I did check out the German alternative for those resident non-citizens with employers outside Germany (called „Privat“ ), and was quoted €30,000 a year in premiums, and that was 12 years ago! If I do get drastically sick, I‘d need to rack up $350,000 in bills before just getting back to zero in premiums saved since I moved my official residence here.

[llmart]

38. You really think 50% is a great deal?

I guess it sort of depends on how much the spouse gets. I get 50% of my ex-spouse's but I can tell you it isn't enough to live on.

[Shermann]

39. I do

Let's run the numbers.

The primary earning spouse is 67 and makes $170,000 and has hit the earnings limit for 35 years. They are paying 6.2% a year to OASDI, or approximately $9900 for 2023 (there is also a hidden 6.2% employer contribution). They file at their full retirement age of 66 and get benefits of approximately $44,000 per year. The annuity formula can be used to estimate the value of this benefit based on current interest rates, and it is approximately $700,000.

The stay-at-home spouse is also 67 and makes $7000 / year. They also pay 6.2% a year to OASDI, which is $434. That spouse only worked for 10 years and got the 40 work credits. The stay-at-home spouse files for spousal benefits at 66, which is approximately $22,000 per year. The value of this benefit is approximately $350,000. That's what a comparable annuity would cost.

So, putting $4300 in over ten years and getting $350,000 out seems like a pretty good deal to me. It can also be true that it is uncomfortable to live on $22,000 per year. Those are not mutually exclusive.

[llmart]

41. Well, you let me know how many guys made $170,000 a year in the 1970's, 80's and 90's.

Your assumptions aren't realistic.

[Shermann]

42. The assumption was hitting the earnings tax cap for 35 years

This was stated very clearly. The cap was obviously lower in past years.

I will clarify one point and say I am calculating whether this is a good deal or not strictly from an objective financial perspective. You can certainly argue that a different viewpoint should be used and with more subjective criteria. I think it's a tough argument to make given these stark numbers but have at it.

[Silent Type]

28. Obama set up a commission - many called it catfood commission - that would have increased benefits

for those at lower end. But our own Party turned on him immediately saying he was trying to cut social security. He gave up and never made an effort again.

[Kaleva]

34. How does your Dad get by on just $910 a month?

[womanofthehills]

40. There was a time when Elizabeth Warren was addressing this in 2019

Elizabeth Warren’s plan to expand Social Security, explained
It starts with a $200 per month boost in benefits for everyone

https://www.vox.com/2019/9/12/20860672/elizabeth-warrens-social-security-expansion