Bonanza! The 1.7% Social Security COLA for 2015

Seniors on Social Security are no doubt celebrating after learning that, come January 2015, their payouts will go up a whopping 1.7%. By federal law, Cost-of-Living-Adjustments (COLA) link to the inflation rate of the Wages Consumer Price Index (CPI-W). In 1975, when Social Security disbursed the first COLA, recipients got an 8% raise.

A 2015 COLA of under 2% is based on the current rate of CPI-W inflation.Yet, how is it possible for inflation to be this low when everyone experiences the meteoric rise in the price of the most basic goods and services? For example, between September 2013 and September 2014, the cost of food (eating at home via grocery stores) increased 3.2% according to the U.S. Department of Agriculture Economic Research Service. Additionally, the National Energy Assistance Director’s Association, (NEADA), projects that heating costs will rise an average of 10.5% for Americans during the winter 2014-2015. Not to mention, the skyrocketing costs of medical services and health insurance.

Beneficiaries of an 8% Social Security COLA in 1975 paid a whole lot less for everything than do the beneficiaries of the 2015 1.7% COLA. An item costing $100 in 1975 in 2014 costs $442.00 (Bureau of Labor Statistics inflation calculator) and in 2015, that same item will cost even more. The increase in the cost-of-living comes as no surprise to Americans who need credit just to make ends meet. It just does not add up.

For the retired worker in 2014, the Social Security website says the average monthly check is $1,294. Pretty scary. How can a 1.7% COLA help seniors to meet even the most basic costs of food and energy? The short answer? It cannot.

The longer answer confirms what many suspect: Not only is this 1.7% increase insufficient, but it does not accurately reflect actual inflation. Economist John Williams tells the whole story, and proves that the real rate of inflation in 2014 would be BONANZAJP 9.4% if it were not for what he calls “governments gimmicks for understanding inflation.” On his website, ShadowStats.com, he wrote this back when G.W. Bush was president:

• “During the Kennedy administration, unemployment was redefined with the concept of ‘discouraged workers’ to reduce the unemployment rate.

• If Lyndon Johnson didn’t like the growth that was going to be reported in the GNP, he sent it back to the Commerce Department, and he kept doing so until Commerce got it right.

• The Carter administration was caught deliberately understating inflation.

• The first Bush Administration began efforts at the systematic reduction of the reported rate of CPI inflation.

• The current Bush administration has expanded upon the Clinton era… setting the stage for the adoption of a new and lower-inflation CPI.”

One cannot help but wonder why, for decades, administrations have focused on “new and lower-inflation CPI.” Might self-interest cloud the government’s purpose for keeping the official CPI low? Consider this: The lower the inflation calculation, the lower the COLA payouts for Social Security and other entitlements.

Why Saving Money is Difficult

What’s more crazy is thinking about how the next generation will be able to retire. A recent Wells Fargo Bank survey of middle-class Americans was released October 22, 2014. Below are some of the highlights of “Wells Fargo Survey Finds Saving for Retirement Not Happening for a Third of Middle Class.”

• Over 70% don’t think Social Security will be their primary revenue source yet 46-56% of respondents, not yet on Social Security between ages 50 and 75, do believe it will be their primary source.

 

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