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Seniors Lose 24% of Buying Power Since 2000
Old 05-29-2010, 09:28 AM   #1
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Seniors Lose 24% of Buying Power Since 2000

The Senior Citizens League
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In most years, seniors receive a small increase in their Social Security checks, intended to help them keep up with the costs of inflation. But since 2000, the Social Security Cost of Living Adjustment (COLA) has increased average benefits just 31 percent while typical senior expenses have jumped almost 63 percent, more than twice as fast.
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This study makes clear what millions of seniors already know too well: for every $100 worth of expenses they could afford in 2000, they can afford just $76 today,” said Daniel O’Connell, chairman of The Senior Citizens League. “What has long been a difficult situation for seniors is quickly becoming a dire one.”

(The Senior Citizens League is an affiliate of the Retired Enlisted Association.)

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Old 05-29-2010, 11:09 AM   #2
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Yep, the whole retirement issue is based on a LOT of "assumed" trends, trends that seem quite likely to be no longer valid.
Truthful media coverage of this would be too much to ask. The Corporate run society we live in does not need the sheeple to hear the truth. Amazing.
I was in a Financial continuing education class this week, and the question was put... " What % of the US population has $50k or more in total NET worth...incld primary residence & retirement funds?"
Whatcha think? ..........? omg
Who is going to fund the masses retirement?
So many questions never asked, not discussed.
Like....How are average retired folks going to fund an ever increasing budget for their healthcare extras? If not them, who pays?
What happens to a plan when the tax on retirement income, SS, pension, everything...gets hiked ? Reducing deductions, is also a tax hike.
What happens when the local cities & state government workers find their promised cushy index linked DB pensions slashed, during the city or state bankruptcies that HAVE to be in the pipeline? That'll put a crimp in a retirement plan!

Funny none of this gets discussed...as it's not in the accepted trend that folks are depending on. Change is a bitch.

btw...Just back from a long spell in the UK, where public healthcare pays for all one's needs... [MODERATOR EDIT].. it works. I observed my 80 yr old parent get total care, no extra payments, no drug payments. No Payments, period!
Quite enlightening to realise it exists in another country, and even in one just as broke as this one.
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Old 05-29-2010, 11:22 AM   #3
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Weird. The BLS has an "experimental" CPI for the elderly. And the Senior Citizens League knows that:

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However, the government does track the spending patterns of older Americans, and has done so since 1983 with the CPI for Elderly Consumers, or CPI-E. By tying the annual increase in the COLA to the CPI-E, seniors would see much needed relief in their monthly checks. For example, a senior who retired with a benefit of $460 in 1984 would have received $12,856 more over the past 26 years with the CPI-E.
Seniors Lose 24 Percent of Their Buying Power Since 2000

But, the percentage number isn't anywhere close to the 24% headline in this article.
According to this report, http://www.bls.gov/cpi/cpieart2009.pdf which covers 1997 to 2009, the CPI-E went up 36.1% while the CPI-W (used for SS checks) went up 33.8%. That equates to a loss of 1.7% of purchasing power, not 24%

The $12,856 in the SCL quote above seems accurate. Over the 26 years, the CPI-E would have paid out a total of about $238,000 instead of $225,000, that's an additional 5.8%. That's real money, but it's not 24%.

The trouble with switching to the CPI-E is that the difference changes over time. At a very high level, it seems to be decreasing. (I found year-by-year data through 2007 here: http://www.bls.gov/opub/mlr/2008/04/art2full.pdf)

It would be really awkward for Congress if they switched from the CPI-W to the CPI-E, only to discover that in future years the CPI-E gave smaller increases.
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Old 05-29-2010, 11:25 AM   #4
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I suspect switching to the CPI-E would be a great way to accelerate the insolvency of SS and pension plans tied to it.

Another question is: Does the CPI-E only consider the portion of inflation in health care that individuals pay, or does it also include what government and former employers pay?
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Old 05-29-2010, 11:33 AM   #5
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I suspect switching to the CPI-E would be a great way to accelerate the insolvency of SS and pension plans tied to it.

Another question is: Does the CPI-E only consider the portion of inflation in health care that individuals pay, or does it also include what government and former employers pay?
My recollection is that all the variations of the CPI use the portion of medical expenses that consumers pay directly. The first BLS link above has these percents as medical care fraction of total consumer expenses for the CPI-U, CPI-W, and CPI-E: 6.51% 5.26% 11.07%
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Old 05-30-2010, 04:24 AM   #6
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At the risk of overly simplifying the issue, if the problems which SS etc dependent seniors face is caused by the cost of living which they experience rising faster than the CPI based rate of adjustment to their benefits, does it follow that investors who rely on income from TIPS (or similar) face the same issue?
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Old 05-30-2010, 06:25 AM   #7
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Let's see. I'm a senior (eligible to collect SS), yet I don't yet get SS.

Guess it dosen't apply to me ...
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Old 05-30-2010, 07:13 AM   #8
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At the risk of overly simplifying the issue, if the problems which SS etc dependent seniors face is caused by the cost of living which they experience rising faster than the CPI based rate of adjustment to their benefits, does it follow that investors who rely on income from TIPS (or similar) face the same issue?

Yup. And it's also true for anyone using a spending model based on CPI increases (e.g. FIRECalc, etc).
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Old 05-30-2010, 08:01 AM   #9
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Yep, the whole retirement issue is based on a LOT of "assumed" trends, trends that seem quite likely to be no longer valid.
....
Don't quite agree with the moderator edit here but I do agree with the gist of the question brogan007 is posing. Solving/managing any problems we may face really isn't aided by most discussions which bury heads in sands of emotion and denial. Actions have consequences for society as well as individuals. To deny consequences is to take action without thinking. I guess that is why I would have liked a better discussion of single payer health care than we had even if we decided against that solution.

Demonizing people who depended on pensions because they didn't save $1M is not going to change the plight of those people when little to no pension is forthcoming. The very act of offering benefits and increasing benefits over the years has social consequences whether one wants to accept it or not.

I could argue that everyone was in la la land when taxpayers never had much to say about state pensions until recently. Should people taking jobs with outstanding benefits have refused those jobs saying "I am turning you down because I think your voters are in la la land when they ask you to offer me more than they are going to think I am worth 20-30 years down the line."? In short, talking about "what went wrong" and "how can I, a responsible person because I wanted to ER or didn't have a pension, escape the social consequences?" does not change what is and certainly doesn't address what consequences will need to be addressed.

I was reading a Mauldin newsletter a few minutes ago. Much about monetizing debt and problems in Europe. But the US can monetize it's debt so what is the consequence to you if the US were backed into debt monetization? One thing is for sure - those SS promised benefits won't be enough even if current worker salaries can adjust. On the other hand (and this is a big if): If the dollar devalued by 50% and wages rose by 75% of that 50%, we could probably meet those promised benefits if we don't call much to any of it inflation or if we change COLA rules before we do it. Problem solved? Not by a mile because of the social consequence. All standards of living are lowered with retiree standards lowered to permanent unsustainable levels. (My imagination is just flowing here so give me a break on this.) We could then do things like massively increasing cheap public housing or bring back "poor houses", instituting or liberalizing euthanasia laws, increasing welfare/food stamp budgets enormously, incentivizing through taxes the care and maintenance of parents in one's own home, etc. Maybe, if we have enough jobs, we could pass welfare to work laws for 85 year olds. Don't work, don't get your SS and other government subsidies.

OK, maybe I have gone to the extremely ridiculous here but, on the serious side, I think the poster had a point. We don't need "uniquely American solutions" unless they solve the problem. And we certainly don't need questionable assumptions.

So Mauldin goes on to say the only alternative is to increase population and/or GDP. For the US that is not something that could be accomplished overnight. (I am assuming that the air-filled economy/GDP is not coming back.) Anyway, the social consequence of targeting this solution is probably a lower standard of living for workers and that means for your children and grandchildren assuming you are not super rich.

I think that all of you here and I know that we are headed for uniquely retiree solutions and that whatever has to be done, one retiree will be tapped to support another retiree whether it be by reducing one retiree's pension, taxing his savings, lowering his SS, etc in order to sustain another retiree. Does anyone doubt this? You may not like it; I certainly don't. But, with our heads in the sand, what other solution will be available at the last minute?

I just have one question for brogan007 - what are the proper assumptions as you see them?
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Old 05-30-2010, 01:02 PM   #10
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' one retiree will be tapped to support another retiree whether it be by reducing one retiree's pension, taxing his savings, lowering his SS, etc in order to sustain another retiree"

Kinda sums it up.
My whole issue is with the lack of public outrage over the obvious financial hole that the USA is slowly sinking into and the complete lack of discussion on the likey repercussions. I'm trying to understand whether it's denial, lack of knowledge, lack of intelligence or just a complete societal attitude of " not my problem, keep quiet so we can watch Idol" ....[MODERATOR EDIT]

I mean, where's the public awareness that many states are actually bankrupt? Not low on cash...but bankrupt.
Where is the outrage?
Where is the accountability for the men in charge?
Who signed off on the generous pension demands from the public unions?
Where is "campaign promises" accountability?
Why is nobody telling the public the truth?
Important times these...We are living through the "pooring of America".
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Old 05-30-2010, 02:48 PM   #11
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I mean, where's the public awareness that many states are actually bankrupt? Not low on cash...but bankrupt.
Many!?!?! Actually Bankrupt!?!?! Which States are you referring to?

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Why is nobody telling the public the truth?
As said many times by many people throughout history: "What is truth?"
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Old 05-30-2010, 02:59 PM   #12
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Old 05-30-2010, 03:13 PM   #13
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Bankrupt states?
Try Illinois. California. New jersey.
Cities....try Miami, Houston...and many more to follow.
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Old 05-30-2010, 03:38 PM   #14
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Where is the outrage?
....
In a way Mr. Ron Boyd summed it up, didn't he? That's why I asked you what assumptions should be used. That's why I morphed a Mauldin discussion of Greece and Europe into one about the US that came more from the imagination than from facts and truth but wasn't without possibility.

Talking about what will be is a bit more of a problem than talking about what has been. Even talking about what is right now is a bit of a problem.

When I read Ron Boyd's question "Which States?", I fully appreciate his point; do you? So many Armageddon's have occurred in my life or so someone at the time said. Is this the real one? Do you know? Could be that we will just rotate 10-15% of the people through some sort of sacrifice and, down the road, the very same states will be booming from a concentration of the next business revolution. Or not. It would be a good discussion if we could be honest. We can't but we will probably muddle through.

As an aside I can give you a on-the-spot example - right now fixed income individuals are doing quite a bit of sacrificing, especially the middle and lower middle class who invest in fixed income assets like government bonds and CDs. They don't have much of anywhere to go to get returns on the things they invest in. I imagine many of us will take our turn feeling consequences. Also, some young people's entry into stable working is delayed. It's happened before.

And yes, Ron Boyd is more straightforward than myself, but just "what is the truth"? I guess I would add just "what are we solving"? Do we want a quick fix to immediate problems or a quick fix to infinite horizons? What people do not seem to want is an attempt to treat the consequences as a process. What I mean is that it seems highly unpopular to try to manage by process control type techniques. I don't know what is right. It could be that the process has truly exploded and no attempt to control it is relevant. That is today. What though does it really mean tomorrow? Europe was decimated in WWII and, despite the current disaster, they have been much worse off and recovered. Maybe people eventually recover; I don't know. What is the truth?

The conversation of fixing problems right now or 100 years down the road all seem quite silly to me but I may not be the smartest cookie on the block. I am more comfortable with managing the situation - trying small things that can be modified if things don't come back to equilibrium. Others will say I am so wrong as to be not taken seriously.

So what assumptions are valid looking forward? I am still rather lost as to how I am to see the somewhat chaotic present and illusive future. I think economists would also find value in knowing what the assumptions should be.

Your first post seemed to want to proactively face or at least discuss rationally today's problems; your second post seemed to want to retroactively point fingers. I am even more confused.
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Old 05-30-2010, 04:06 PM   #15
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Bankrupt states?
Try Illinois. California. New jersey.
Cities....try Miami, Houston...and many more to follow.
Please refer to my earlier post - What is the probablity that your State Bankrupts?

I am unaware that these states... and cities... "actually" declared Bankruptcy. I must have drifted off.
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Old 05-31-2010, 01:45 AM   #16
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' one retiree will be tapped to support another retiree whether it be by reducing one retiree's pension, taxing his savings, lowering his SS, etc in order to sustain another retiree"

Kinda sums it up.
My whole issue is with the lack of public outrage over the obvious financial hole that the USA is slowly sinking into and the complete lack of discussion on the likey repercussions. I'm trying to understand whether it's denial, lack of knowledge, lack of intelligence or just a complete societal attitude of " not my problem, keep quiet so we can watch Idol" ....[MODERATOR EDIT]

I mean, where's the public awareness that many states are actually bankrupt? Not low on cash...but bankrupt.
Where is the outrage?
Where is the accountability for the men in charge?
Who signed off on the generous pension demands from the public unions?
Where is "campaign promises" accountability?
Why is nobody telling the public the truth?
Important times these...We are living through the "pooring of America".
A++++++ post brogan. i'll be keeping my eye on you.

back to topic - the private central bank's interest rate policies (the fed) in concert with cpi manipulation = retirees and fixed income folks get jobbed.

when the banks all blew up they should have had to come BEGGING for saver's cash....which should have pushed interest rates up. instead, the fed steps in and steals the saver's day in the sun --

now we are looking at 2.x % 5 year cd's....it's criminal what they are doing to the retired.
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Old 05-31-2010, 04:05 AM   #17
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Bankrupt states?
Try Illinois. California. New jersey.
Cities....try Miami, Houston...and many more to follow.

There is a big difference between a state having a huge deficit problem which the IL,CA, and NJ definitely have and being bankrupt.

The state of California owns a huge number of assets. 1.4 million acres of parks, hundreds of college campus, labs,50,000 miles highways etc. Many of which could be monetized. Heck if Meg gets elected governor I bet she'd even knows of a nifty website that she could use to auction some of them off.
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Old 05-31-2010, 09:36 AM   #18
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Heck if Meg gets elected governor I bet she'd even knows of a nifty website that she could use to auction some of them off.
As long as she files her 1099-Ks, no problem!
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Old 05-31-2010, 10:16 AM   #19
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The state of California owns a huge number of assets. 1.4 million acres of parks, hundreds of college campus, labs,50,000 miles highways etc. Many of which could be monetized. Heck if Meg gets elected governor I bet she'd even knows of a nifty website that she could use to auction some of them off.
This is true, but these things have been public goods historically. The beaches could be sold too, and California would look more like Florida.

No matter how one looks at it, bankrupt or not, it is a massive transfer of wealth from the public to the beneficiaries of state largess. These are mainly politicians, and state and municipal workers, and to a lesser extent recipients of cash aid, and non-taxpaying individuals and entities in the state. And of course long time home-owners.

Ha
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Old 05-31-2010, 03:33 PM   #20
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This is true, but these things have been public goods historically. The beaches could be sold too, and California would look more like Florida.

No matter how one looks at it, bankrupt or not, it is a massive transfer of wealth from the public to the beneficiaries of state largess. These are mainly politicians, and state and municipal workers, and to a lesser extent recipients of cash aid, and non-taxpaying individuals and entities in the state. And of course long time home-owners.

Ha
California is in serious financial trouble probably as bad as in state in the country and I completely agree with the root cause. The situation is bad enough that we don't need chicken little types to make it worse.

I am figuring eventually Uncle Sam is going to be asked to bailout California. The state can pay back Uncle Sam by increase revenue on things it owns like turning freeways into toll roads, raising fees on beaches and parks and even selling off things.

As a taxpayer (well most years) I am less upset about loaning money when I think I may get it back (like banks) than to truly insolvent organizations like GM.
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