Last fall, the Social Security Administration – overseen by its top trustee, Treasury Secretary Steven Mnuchin – said that benefits for nearly 69 million Americans would increase by 1.6% in 2020. The inflation-linked number meant that the average recipient would receive $ 24 more each month, or about $ 1,503 annually.
That was all well and good, until new government data showed on Tuesday that the cost of living actually increased by 2.3%, faster than previously forecast.
Read: Everyone should be concerned about social security and the 401 (k) balances, including presidential candidates
Behind the top of the year: Higher prices for gasoline, health and rent. This means that social security recipients will fall behind inflation by seven tenths of a percentage point at least until the next cost of living adjustment (COLA) this autumn.
The rise in health care costs appears to be particularly worrying and shows no signs of waning. At the beginning of 2020, drug prices rose by an average of 5.8%, according to an analysis by Rx Savings Solutions. Some drugs grew even more, including the world's best-selling drug, Humira, which grew 7.4%. The treatment of rheumatoid arthritis is carried out by AbbVie Inc.
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Inflating seven tenths of a percentage point may not seem like a big deal until you consider how dependent millions of Americans are on social security. Among the older beneficiaries, 21% of married couples and 45% of single people rely on the program to generate 90% or more of their income. So if inflation rises faster than monthly checks, decisions can be made.
This excessive dependency on social security reflects the lack of personal savings. According to this survey by the Transamerica Center for Retirement Studies, the average US retirement savings for Americans in the fifties were only $ 117,000 and for Americans in the sixties $ 172,000. Median means that half has fewer numbers than these, while half has more. And since the general rule of thumb is that you should try to live on no more than 4% of your savings each year, it means that someone in the sixties could – likely – withdraw 4% of that $ 172,000, a meager $ 6,880 , How far do you get with it This puts even more pressure on social security to keep up with the cost of living (you should always discuss your details with a trusted financial advisor).
Read: This hybrid social security plan can help save more people for retirement
As important as social security is, it is important to remember that the future of this venerable program, which began in 1935 under President Franklin D. Roosevelt, is itself under pressure. Based on government projections, the program has begun diving into its piggy bank this year to deliver the benefits promised to retirees. If nothing is done by 2034, recipients will receive 21% less this year.
It seems like a long time, and Republicans and Democrats can certainly compromise and do something, right?
If you trust our elected officials to stop arguing about everything and working together, then you are probably right. But to support social security, the solutions are obvious and not without pain: higher taxes, reduced benefits and a higher claim age. Or a combination of them.
In the meantime, an even shorter deadline is emerging: Medicares health insurance funds are expected to expire by 2026. What happens then? Doctors, hospitals and nursing homes could drop out of the program – and transfer this burden to you. 10,000 Americans are retiring daily – a wave that will continue until 2029. Millions of people chasing fewer and fewer dollars?
Something has to give.