Barrons: Social Security’s COLA Is No Bonus

[camfused]

<soapbox>
I think some on this forum need a reality check for how "normal" people live (not us folks on the ER forums). Many (most?) folks in this country *need* the SS income to either somewhat keep up, or to not starve, when they retire. I personally have many family members that currently do, or soon will, live only on their SS income. Some have a retirement savings cushion (that they hope not to tap into, if possible), and others have near nothing for savings. The later plan on (have to) working as long as they possibly can...well past 70. I personally was blessed with a high-paying, fully-employed career, and was able to retire early. I believe most people out there are not able to. Let's have some sympathy for the non-ER people.
</soapbox>

 

[Chuckanut]

Well put. I was only piqued by the author's editorializing, which implied that there is an expectation of a taxpayer-funded SS "bonus." Those people who think they're not getting their deserved "bonus" would be the same ones who complained, while working, of having to pay FICA taxes.

The guy who writes the Social Security and You blog does what seems to be a yearly 'blow off some steam' article where he basically tells the Social Security is cheating me folks how foolish they are. It's quite amusing and proves that you can't make certain people happy no matter how hard you try.

Here is a link to some of his blog posts:
https://www.creators.com/features/your-social-security

 

[athena53]

It appears from the responses that many people live on SS. News reports confirm that.

I have wondered is that the result of poor retirement planning or lack of choice due to an income stream that did not allow for adequate savings. (I do understand that there might be a medical issue or other event that requires saved funds to be redirected).

For those who have some experience with friends or relatives, how did they get to living only on SS?

Just a curiosity of mine from a social science point of view.

It's a mix and some have more than one reason. From what I see:

1. People who truly did not make enough to accumulate any meaningful savings. Raised family on low-paying jobs, large number of kids, divorced with no child support, left workforce early to care for ill family members, developed medical issues themselves that limited their ability to work.

2. People not equipped to make investment decisions so they just don't try. For many it's a foreign country- I remember Dad started investing in his late 30s (this would be the 1970s) and you had to go downtown to the stockbroker. Dad was white, male and college-educated so at least he looked like the guys working at the brokerage. Investing was a lot less accessible back then. I learned from Dad and I'm forever grateful but not everyone had that.

3. Family example. Everyone else living paycheck-to-paycheck and trying to get by on SS in retirement so it looks like a plan.

4. Not understanding how SS and Medicare work. There are still people who seem surprised that what they'll collect is so low (even though you can get it on the SS site) or that Medicare doesn't cover dental, hearing aids and vision care or that if your spouse dies, you get only Survivor benefits, not what you and your spouse were collecting together.

5. The ones who have tarted-up SUVs and F-150s, expensive tattoo "sleeves" , the latest phones and a car for each kid with a driver's license but nothing saved. That's the stereotype, of course, and I try not to paint all the "SS only" people with that brush. I suspect many of them don't understand compound interest and really believe that they can't save enough to make a difference.

 

[ncbill]

Obviously those folks that thought they could live off SS only, must never heard of the old 3-legged retirement stool where SS was only 1 of the 3 legs.
I bet a number of those people also believe Medicare is free (no Part B premium).

The last relative I buried worked for the same Fortune 500 company for 25 years before that company spun off the IT department where she worked to an independent division & converted everyone's pension to a cash-balance plan, at terms very favorable...to the company.

3 years later the company outsourced the division & terminated everyone when she was around age 60.

So she had to cash in her pension to make it to SS at age 62.

And no employers were hiring over-age-60 IT workers back then.

Owning a home helped as she immediately refinanced when her job ended, later adding a HELOC.

By sucking as much equity as possible out of it managed to stay in her home for another decade or so until just a few months before her death.

As a single-income household raising multiple kids she never had more than a low 6-figure IRA, so even that got drained completely.

 

[AmigaDude]

It appears from the responses that many people live on SS. News reports confirm that.

I have wondered is that the result of poor retirement planning or lack of choice due to an income stream that did not allow for adequate savings. (I do understand that there might be a medical issue or other event that requires saved funds to be redirected).

For those who have some experience with friends or relatives, how did they get to living only on SS?

Just a curiosity of mine from a social science point of view.

If you really are interested, (from a social science point of view), might I suggest that you look forward by asking some of these folks what their retirement plans are:
- generic office worker
- a barber / hairstylist
- construction worker
- housekeeper
etc..

Once you listen to how they/we respond, you will have your answer for the past, present, and future.

 

[Bigdawg]

If you really are interested, (from a social science point of view), might I suggest that you look forward by asking some of these folks what their retirement plans are:
- generic office worker
- a barber / hairstylist
- construction worker
- housekeeper
etc..

Once you listen to how they/we respond, you will have your answer for the past, present, and future.

I have met succesful people in the bolded professions. The ones I have met who (started off as) generic office workers worked there way up. One such individual stated as a GS-5 clerical in the 1980's. She retired as an SES. The successful barber/sylists I have met were typically spouses of higher earners and/or local with low costs (still live with older parent, etc...). The construction workers I know who are/were successful either moved up/out of the industry or transitioned to heavy equipment operator or specialized in plumbing, electrical, etc... The only housekeepers I have met that have made it were spouses of higher earners. I knew (and so did literally every one of my 38 classmates in HS) that those bolded professions were most likely NOT going to get me to ER. I personally don't think it's a secret. The information is all right there for the ingestion/digestion. The areas of my life that I have not been completely successful at exist because I failed to execute. Not because I didn't know how or the information wasn't readily available.

 

[jldavid47]

Originally Posted by savory
It appears from the responses that many people live on SS. News reports confirm that.

I have wondered is that the result of poor retirement planning or lack of choice due to an income stream that did not allow for adequate savings. (I do understand that there might be a medical issue or other event that requires saved funds to be redirected).

It's a mix and some have more than one reason. From what I see:

1. People who truly did not make enough to accumulate any meaningful savings.

2. People not equipped to make investment decisions so they just don't try.

3. Family example. Everyone else living paycheck-to-paycheck and trying to get by on SS in retirement so it looks like a plan.

4. Not understanding how SS and Medicare work.

5. The ones who have tarted-up SUVs and F-150s, expensive tattoo "sleeves" , the latest phones and a car for each kid with a driver's license but nothing saved.

I've been holding off on a response to this but there is a number 6:

6. Because you can.

And if you can it isn't due to poor planning it's because of good planning. In our case we can comfortably live off of our combined Social Security income and by "comfortably" I mean we have some left over at the end of almost every month. We do not live at a subsistence level either. How do we do it?

1) We've always lived beneath our means and don't have an extravagant lifestyle. That means we accumulated savings over the years and when it came time to retire any reduction in disposable income was easily absorbed. However...

2) Our after-tax income actually rose after we retired and started taking Social Security. This is mainly due to the preferential tax treatment of Social Security income (plus we live in a state that does not tax it). I had retired in late 2014 and from then to 2020 we were pretty much living off my wife's salary. After taxes we now have more household income than when she worked.

3) 6+ years prior to retirement we moved to a lower cost area. This was job-related and a bit fortunate, but it helped stretch our dollars. Our property taxes alone dropped by $7,500 per year and we had actually moved into a slightly larger house.

4) We are debt free in retirement. We have no mortgage payment and we use credit cards to get cash back, paying the balance each month. Using credit cards in that manner isn't carrying debt, it is simply deferring payment to our advantage.

Very few people can do what we do by choice. Most who live off of Social Security do so because they have to (for whatever reason). You might think we're lucky but I think Branch Rickey's observation applies here: "Luck is the residue of design."

 

[athena53]

I've been holding off on a response to this but there is a number 6:

6. Because you can.

<snip>
Very few people can do what we do by choice. Most who live off of Social Security do so because they have to (for whatever reason). You might think we're lucky but I think Branch Rickey's observation applies here: "Luck is the residue of design."

Yes, I did miss that. I know there are others on this Board who are living only on SS and planned for a lifestyle that allowed them to do it. I agree that you're in the minority and the sad stories I see on FB are from the ones who ended up relying only on SS by default.

 

[Major Tom]

Does the author actually believe that people live on SS alone and no other income streams?

My response is not really necessary at this point, but I'd like to add my observations to the chorus of people here who have already testified as to the people they know (or know of) who live on SS alone. I live in a housing co-op, with a wide range of personality types, education levels, and incomes. One of our residents is in his 70's, and lives on SSDI alone. It's a surprisingly low amount - about 1K/month. He gets a little extra help from friends, but not much. It's a pretty meager existence, but he's largely housebound, so I guess he doesn't get as much opportunity to spend as others might. A friend and neighbor, who lives around the corner, is in her mid 70's, lives alone, and gets by solely on SS, with absolutely no other income sources. Another friend and neighbor is living solely on a disability pension from her former employer. The pension runs out in the next 10 years, after which she will have to get by on SS alone. She doesn't yet know how she is going to do it, but I feel sure she will find a way. She has no assets.

I don't have a very large social circle, but suspect that quite a few others with whom I am less well acquainted, are in much the same positions. A lot of people don't plan for their future financially. If it weren't for SS, their situations would be very precarious indeed.

 

[bmcgonig]

Part be is slightly lower this year. It really not enough to make a real difference.

I had Part B removed from my Medicare plan.

I’m wondering why you would cancel part B? It’s pretty important it seems to me.

 

[jimbee]

Does the author actually believe that people live on SS alone and no other income streams?

My post is redundant, but many, many people live on SS alone.

 

[ncbill]

I have met succesful people in the bolded professions. The ones I have met who (started off as) generic office workers worked there way up. One such individual stated as a GS-5 clerical in the 1980's. She retired as an SES. The successful barber/sylists I have met were typically spouses of higher earners and/or local with low costs (still live with older parent, etc...). The construction workers I know who are/were successful either moved up/out of the industry or transitioned to heavy equipment operator or specialized in plumbing, electrical, etc... The only housekeepers I have met that have made it were spouses of higher earners. I knew (and so did literally every one of my 38 classmates in HS) that those bolded professions were most likely NOT going to get me to ER. I personally don't think it's a secret. The information is all right there for the ingestion/digestion. The areas of my life that I have not been completely successful at exist because I failed to execute. Not because I didn't know how or the information wasn't readily available.

Not my experience.

My college roommate's father was a barber, divorced.

He continually struggled with making ends meet.

Was in trouble all the time with the IRS for not paying self-employment taxes, since those were often the difference between deciding to pay for food or rent or being able to pay for both.

Worked up almost until the day he died...by then he was living in a rented room since he couldn't afford an apartment.

Made it easy for my roommate to "settle his estate"...just had to remove his dad's personal possessions from that room.

 

[CaptTom]

Am I the only one who sees the elephant in the room around all these "isn't it great SS recipients are getting a big COLA increase" articles?

They're getting a big increase because the cost of living already went up. They are already behind.

We've had discussions here about how unrealistic the government inflation numbers are. When everything you buy has increased 40% and more, it seems hard to get excited over an 8% (or whatever, I don't even look) increase.

I always knew SS is going to be a lot lower in real dollars when I start collecting than today's numbers suggest. I actually consider myself very lucky to have lived through five years of very low inflation post-retirement, with only this past year blowing up. I was prepared for that to happen in year one, so I figure I'm ahead of the game.

 

[jollystomper]

How one looks at the increase depends on having the means to manage (or ignore) the inflation one is impacted with. If one has the assets to manage inflation increases without impacting one's desired lifestyle, then it may seem like a "bonus". If one has had to make undesired changes to deal with the impact of inflation, this is something, but probably not enough to keep up.

 

[Chuckanut]

Am I the only one who sees the elephant in the room around all these "isn't it great SS recipients are getting a big COLA increase" articles?

They're getting a big increase because the cost of living already went up. They are already behind.

+1

I also don't understand the celebration. The higher inflation rate has taken a healthy 8+% out of whatever savings these SS recipients may have. How long will it take them to make up that?

While the income tax brackets have also been raised by the inflation rate, the numbers that dictate how much of your SS income is taxable have not. So, the Feds will scrape a few more dollars off the SS payment.

FWIW, the top earnings limit for paying SS taxes is also indexed and will also go up for 2023.

The Social Security Administration (SSA) has announced that the maximum earnings subject to Social Security tax (Social Security wage base) will increase from $147,000 to $160,200 in 2023 (an increase of $13,200). The maximum Social Security employer contribution will increase $818.40 in 2023.

 

[PatrickA5]

I have two close relatives that live on Social Security.

My SIL. She is on SS disability and has been for the last 10 years. I've done her taxes for 30+ years. Her best income that I can remember was $21K. Most years she made $15K to $18K working full time. Her father gives her $400 a month (reluctantly) to go along with her $1,000 SSDI. Her 403B topped out at $18,000 and is down to $1,500. That's all of her savings. She's an example of someone that didn't make enough to generate savings.

My brother. Made big bucks as an IT recruiter (owned the company) back in the 90's and early '00s. Spent it all. Saved little. Then got divorced. As far as I know, he doesn't have savings. He's a good example of someone that didn't plan well.

 

[TheWizard]

Some of these stories make me shudder.
I almost feel like I live in a different universe or something...

 

[rothlev]

some do; I have been surprised. Doing taxes for TaxAide I often have people come in just to file (they don't understand that they don't need to file). Often they live with a relative -- essentially free rent but otherwise pay their own way.

I do taxes also. Very large percentage of older adults live in either a multi generational household or have 2 social security checks to live on with a relatively small amount of interest, or dividends . Others on social security alone live very comfortably in section 8 senior housing. they do fine. I have a friend who when her spouse passed decided to gift her children the life insurance he left her, and her home proceeds from that sale. ( that was all she had). She lives very contentedly with one of the son's in an in law suite in his home that he purchased with her money. In additon to the low expenses she is not alone, thus having her son close by . She is happy to see her money help her children while she is still alive. Her husband had earned a high income, so I am guessing her social security is higher than average.

My concern of course is this arrangement is fine as long as she never needs long term care, or expensive assistance, if she does then what?

 

[Running_Man]

I do taxes also. Very large percentage of older adults live in either a multi generational household or have 2 social security checks to live on with a relatively small amount of interest, or dividends . Others on social security alone live very comfortably in section 8 senior housing. they do fine. I have a friend who when her spouse passed decided to gift her children the life insurance he left her, and her home proceeds from that sale. ( that was all she had). She lives very contentedly with one of the son's in an in law suite in his home that he purchased with her money. In additon to the low expenses she is not alone, thus having her son close by . She is happy to see her money help her children while she is still alive. Her husband had earned a high income, so I am guessing her social security is higher than average.

My concern of course is this arrangement is fine as long as she never needs long term care, or expensive assistance, if she does then what?

You go to a medicaid facility.

 

[wmc1000]

Social Security income covers all of our necessary living expenses with some left over. We dip into savings for "extras" (e.g. vacation, new car, major home improvement). If we spent nothing on "extras" we could live on our combined SS income, no problem. Then again, we have no debt and live in a relatively lower cost area.

+1 here

 

[Running_Man]

A couple who both claim at age 70 at the top of the Social Security payments and no other income would each get $50,328 in income for a total of $100,656 and would not pay a penny in Federal Income Tax. In fact they could have an additional $9,308 in income and still pay no tax.

The social security taxable income "problem" is not a problem for people with only social security, no matter what the increase is in social security in the coming years.

 

[daylatedollarshort]

You go to a medicaid facility.

If she is past the look back period, 60 months in most states, for giving her assets away. Otherwise she will be in the penalty period and be ineligible.

 

[karen1972]

The benefits would depend where you live, but people with $800 a month in SS would also likely qualify for a whole slew of other assistance programs, like Medicaid, subsidized housing, free meals, food bank help, utility help and a bunch more. In our area there is a good tax base, so the senior centers have really a lot of support - free meals and activities, budget help, door to door free or almost free transportation, senior roommate matching, subsidized ride share programs, legal help and more.

Yours is a great example of how inequitable it is though. My small town, there are no free meals delivered, no public transit, no senior center, no legal help, etc... and it is full of people that are at the $800/month SS. There is two income based senior living in the community which are full with waiting lists out two plus years. These are the types of communities where if you grew up your whole life in, its hard to move to the "big city" away from everyone you know. It comes down to really the churches to try to fill any gaps in everything that otherwise the larger city would typically provide otherwise its left to local business to be giving. Like the pharmacists who delivered drugs for free to elderly on his own dime. There is only 1 grocery store in town, its super expensive as its not part of a chain so no vehicle means you are stuck up paying for groceries you can barely afford. The food bank is at the church but its ill stocked and they lost their freezer/refrigerator for months so even if you wanted to donate fresh produce/meat, you couldn't (Once I found out I bought them one but its one freezer for a whole town, not enough really but its all the room they are allocated).

Just a few examples, but its really tough and honestly most of the people in town never made much above minimum wage as thats all the jobs locally paid so its a continuous cycle of poverty.

 

[daylatedollarshort]

Yours is a great example of how inequitable it is though. My small town, there are no free meals delivered, no public transit, no senior center, no legal help, etc... and it is full of people that are at the $800/month SS. There is two income based senior living in the community which are full with waiting lists out two plus years. These are the types of communities where if you grew up your whole life in, its hard to move to the "big city" away from everyone you know. It comes down to really the churches to try to fill any gaps in everything that otherwise the larger city would typically provide otherwise its left to local business to be giving. Like the pharmacists who delivered drugs for free to elderly on his own dime. There is only 1 grocery store in town, its super expensive as its not part of a chain so no vehicle means you are stuck up paying for groceries you can barely afford. The food bank is at the church but its ill stocked and they lost their freezer/refrigerator for months so even if you wanted to donate fresh produce/meat, you couldn't (Once I found out I bought them one but its one freezer for a whole town, not enough really but its all the room they are allocated).

Just a few examples, but its really tough and honestly most of the people in town never made much above minimum wage as thats all the jobs locally paid so its a continuous cycle of poverty.

I agree it is inequitable. I would be in favor of national assistance where everyone who needs it gets at least some kind of minimal living arrangements, like a dorm room or tiny house, simple food and medical care. Some cities here have started providing permanent living quarters in converted hotels or tiny houses for the poor, so that is a start. There are good programs here for low income and senior households, but housing and homelessness remain big issues. Many of the homeless here are seniors.

 

[TheWizard]

A couple who both claim at age 70 at the top of the Social Security payments and no other income would each get $50,328 in income for a total of $100,656 and would not pay a penny in Federal Income Tax. In fact they could have an additional $9,308 in income and still pay no tax.

The social security taxable income "problem" is not a problem for people with only social security, no matter what the increase is in social security in the coming years.

Not yet, correct.
But two points:
1) as the years roll on, with additional COLAs, the time will come when SS by itself will begin to have a nonzero federal income tax due, slowly at first.

2) I suspect that very few people who are living on SS alone were able to wait until age 70 to claim AND had anything close to the maximum benefit. It just doesn't work out that way, for the most part...