If you’re too young for Social Security benefits, you may not be aware that every December the Social Security Administration (SSA) sends out a notice to benefit recipients of their “benefit amount” for the coming year. It doesn’t want us elderly Americans to be surprised when the first monthly deposit of the new “benefit amount” arrives electronically in checking accounts come January 3.
Sometimes the amount actually goes up a tiny bit. That’s because benefits for “senior citizens” are supposed to rise with the cost of living. However, when there’s no such rise, as measured in ways described below, the benefit does not go up. Or, as the SSA described it reassuringly to me and millions of other elderly citizens last month:
We review Social Security benefits each year to make sure they keep up with the cost of living. The law does not permit an increase in benefits when there is no increase in the cost of living. So your benefit will stay the same in 2016. [Italics added.] There was no increase in the cost of living during the past year based on the Consumer Prince Index (CPI) published by the Department of Labor. The CPI is the Federal government’s official measure used to calculate cost of living increases.
The Consumer Price Index used by the SSA for its periodic Cost of Living Adjustment is the CPI-W. According to Wikipedia, the CPI-W is based on the price of an alleged market basket of products used by an urban wage earner and clerical worker population consisting of clerical workers, sales workers, craft workers, operations and service workers, and laborers. Excluded from this population are professional, managerial and technical workers, the self-employed, short-term workers, the unemployed and retirees and others not in the labor force. Since retirees are excluded, it follows that their increased medical and drug expenses are not factored into the CPI-W. The CPI-W apparently did not go up in 2015.
Bill and I have just spent the past few weeks investigating several well-recommended non-profit retirement communities in our area, where I specifically asked about the estimated increase in monthly fees from year to year — the fees representing a sort of unofficial consumer price index for the elderly who might be considering a move to one of these places. These are the fees which cover the price of one hot meal a day, heat, electricity, basic television, cleaning, plant and grounds maintenance, and the like. At Pennswood, a Quaker retirement community in Newtown, Pennsylvania, I was told it is just under 3% every year, including 2015. At Stonebridge, in Montgomery, New Jersey, it was reported as between 2.6% and 2.7%. At Windrows, in Plainsboro, New Jersey, it was similar. Does it make sense for the SSA, whose beneficiaries are the old and the disabled, to base its Consumer Price Index calculations on putative expenditures by a wholly different population?
Let’s leave that one unanswered for the time being and move on to the SSA’s December message. The truth is that the SSA was jerking us around when it announced that because the cost of living did not go up in 2015 (yeah, yeah), our benefits would “stay the same” in 2016. Yes, gross benefits will remain the same. But as a practical matter, the message is a lie. The gross benefit is reduced by the monthly premium for Medicare Part B (insurance for out-of-hospital medical costs such as doctor visits, outpatient “procedures,” and the like), so that the money which reaches your bank is net of that premium. If you signed up for Medicare Part D, which covers most of the cost of prescription medication, that monthly premium also comes out of the gross. And guess what? The monthly cost of the two premiums together went up between 2015 and 2016. Which lowered the net benefit — the actual amount of money old people get to spend on the “cost of living.”
It didn’t lower it very much — only by $15.60 a month. But the average Social Security monthly benefit is $1.230.00 gross. (Again, I credit Wikipedia for this information.) Take away $209.60 — the 2016 monthly premiums for Part B and Part D together — and only $1.020.40 is left. If I were in that parlous situation, I would rather not pay the additional $15.60 in premiums and have $1,036.00 in income every month, like last year. $15.60 represents at least a couple of thrifty home-cooked dinners.
When Franklin Delano Roosevelt signed the original Social Security Act into law in 1935, the benefits were intended to be only one leg in a three-legged stool, supported on its other two sides by a private pension and by retirement savings. But according to Eduardo Porter, in “An Aging Society Changes the Story on Poverty for Retirees” (New York Times, December, 22, 2015), a recent study by the Government Accountability Office estimated that fewer than one in five retirees among the bottom 20% had any kind of defined benefit pension that pays a guaranteed monthly amount, and fewer than 1 in 10 have any retirement savings at all. Moreover, a typical low-wage retiree can expect to receive only 44% of his or her lifetime wage from Social Security.
That being the case, one could, of course, advise our “average” beneficiary to forgo prescription medication insurance in 2016. But is that really a “luxury” for the old? Are the still relatively healthy young aware of how much it’s going to cost to ride bareback — that is, uninsured — into the wilds of pharmaceutical costs awaiting them when they age, even if they’re among the relatively few who’ve always taken care to eat right, exercise, avoid stress, and be born to genetically lucky parents? Why not advise the pharmaceutical and insurance industries to forgo just a little profit instead?