Monday, August 31, 2009

Frozen Social Security Checks: It’s More Complex Than You Think

Frozen Social Security Checks: It’s More Complex Than You Think

Right off the bat, let me say that this situation applies to everyone! It’s as valid for those of us who are not yet receiving Social Security – if not more critical – as it obviously is for the roughly 50 million people who currently receive Social Security checks.

About 34 years ago, the federal government decided that since the prices of goods and services generally increase year after year – otherwise known as inflation or the cost of living index – Social Security benefits needed to reflect these changes in the cost of living. So the idea of a cost-of-living adjustment (COLA) was instituted in 1975.

Today, the Social Security Board of Trustees is projecting a moratorium on increases in our benefit checks for the next two years. To tell you the truth –like I always do – I have read the Associated Press report on this a couple of times and still have not found the reason for this decision.

As usual, though, there are those who argue that since inflation has been “negative” this year versus last year, the decision is fair. And there are those who say it is not fair. Perhaps you may be eager to know which group position I take? Let me give you some practical, factual information, accompanied by a little bit of speculation – what the heck!

Consumer Price Index vs. Reality

Theoretically, prices fell in 2008, when compared to 2007. Yeah! I know you’re falling off your chair in stunned silence, but that is what negative inflation means – in theory. Come on, folks, are your grocery prices lower today than they were a year ago? Those of you who are renters, did your rent escalate or decrease, since inflation’s been negative? I know the lease payments for our offices went up, without fail. And oh, do you remember how much movie tickets used to cost a year ago, versus what they are now?

In the interest of full disclosure, we are not on Social Security, so what happens with our office rent doesn’t really apply, in this case. What you must remember are the millions of seniors who do receive Social Security benefits while holding lease agreements similar to ours. Perhaps the seniors I consult with are weird, because the costs of their everyday stuff have increased since last year.

You Must Understand the Bigger Picture

According to the annual report published by the same Board of Trustees who said no increases for 2 years on May 12, 2009, Social Security will start going broke in 2016 and would basically be “exhausted” – I like to use the much-easier-to-understand phrase “dead broke” – by 2037.

Just a year earlier, the very same report by the very same Board of Trustees predicted 2017 as the “start going broke” date, rather than 2016. The dead broke year was also further out – four years to be precise – in 2041. I really hope that by next year these numbers do not move inch up yet again, becoming 2015 and 2033, and so on.

Michael J. Astrue, the Commissioner of Social Security, described this May 12 report as “disappointing, but not unexpected.”

A Little Common-Sense Speculation

Before I go any further, please notice that the Commissioner of Social Security said it is “not unexpected” that the trust fund will be “exhausted.”

Now, this is not me having access to privileged information, or mere speculative ramblings – this is information from the annual Social Security statement every America worker receives. The one that says “prepared especially for (your name).” The statement is signed by Commissioner Astrue, himself. Check yours – I tend to think he has a cute signature.

Now, would someone be crazy to say that Social Security is running out of money FAST and will be depleted, used-up, or bankrupt soon? Apparently not, as we continue to receive signed statements annually telling us about it.

A fixer by nature, I have thought of three possible solutions:

  1. Increase the Social Security tax levied on workers and employers.
  2. Reduce the benefits being paid out.
  3. Create some combination of items 1 and 2.

This is a blog, so please feel free to share any other practical ideas you have about fixing the problem.

Of course there are those who say that by law, Social Security benefits cannot be decreased, so retirees should not worry. I agree with the law part, but I have three rhetorical questions:

  1. Can those who passed the law change it?
  2. What if there is no money to uphold the law? Period!?
  3. If your pension’s administrators continue to send you annual statements projecting that the funds “will be exhausted” in such and such year, wouldn’t you be seriously concerned that it is actually happening?
Well, there’s always the possibility that the federal government will take care of all of us. But how? With money, of course. How does Uncle Sam make money? If you said from the taxes we pay, we are on the same page – which means you are following me so far.

Another Serious Fact

Our nation’s 10-year federal budget deficit, as projected by the White House’s Office of Management and Budget is running at an unimaginable $9 trillion. In laymen’s words, that means we are spending more than we have tax revenues to cover –$9 trillion worth!

So where do you think future tax rates are headed? If you’re thinking anything other than up, you are frankly fooling yourself. As for the government taking care of us via Social Security, I seriously don’t know.

My Free, Serious, Practical, and Sincere Advice

Regardless of how old or young you are, or your current tax bracket:

  • Get your retirement funds out of the paths of taxable plans like 401(k)s, 403(b)s and IRAs as soon as possible. It does not make sense to delay taxation into the future when rates are likely to spike. We put our clients in vehicles that, when they access their money, do not create what the IRS refers to as “a taxable event” – meaning it’s tax-free, so they do not have to worry about tax rates.

  • Plan on taking care of yourself – by yourself. Don’t count so much on the government. See it as a bonus instead of a necessity, because if you’re still counting on receiving your share, you might be devastated if the forecasts of the Social Security trustees turn out to be true – even partially.
This is the kind of candid advice we always offer our clients here at Laser Financial Group You see, we believe that practical concepts, rather than theory, should be incorporated into retirement planning – since people do actually retire in real life.

I am feeling like an incredible genius right now because almost all the principles on which we base our advice are turning out just as the doctor ordered. Well, not really. Come to think of it, it’s just plain old common sense at work, again!


  1. This is a great piece. The way you put it is very plain and true. If we have more financial advisors like you around I bet most people would not be screwed up financially like we are now. Excellent commentary.

  2. I AM a social security recipient. My sister and brother in law are social security recipients. My 86 year old mother is a social security recipient. Because my father, an attorney, became ill years before he passed away, they used all savings to keep a roof over their heads and pay medical bills. Today, she receives $560 per month. If her home was not paid for, she could not make it without welfare....STATE money. From her $560 the social security administration takes $99 for Medicare. My sister and brother in law worked themselves to death during their work years, and, as a result, their health is ruined. They pay almost $700 each month from their meagre retirement checks and social security. You are correct that regardless of what we are told, grocery bills ARE climbing. Rents ARE raised for apartments and houses. People ARE going without health care because they cannot afford it. Dentists and doctors STILL charge the doctor just went up $5 on HIS fees to be paid by the patient...not the insurance company. Gasoline has not dropped below PRE-gas crisis prices. Mechanics are seeing cars parked...not being fixed. When they ARE fixed, all the necessary work is not being done because people cannot afford it. Why don't we admit what has happened to the Social Security Account? Remember when it was a separate ACCOUNT? The Account was LOADED with money. Thanks to our sleezy government, legislation was passed that dissolved that SEPARATE ACCOUNT and put every last dime into the GENERAL FUND. THAT nailed all of us to the wall. Now, the same old buzzards are telling us the fund is drying up. Let's face it people. If a SEPARATE ACCOUNT is NOT restored, the thieves will continue until there is nothing left for the people who PUT it there. When that happens, maybe every last elderly person who can walk, roll, hop, or ride will drag our starving butts to the capitol and try our best to rip the place apart. If we don't have a retirement system, these sleezy politicians are going to have to come up with welfare checks or permanent, perpetual soup lines with the elderly dying on the danged streets. THEN we can say we are that THIRD WORLD COUNTRY that we really are. I am enraged at a Congress and Senate that have their "own" retirement plans and health insurance. If we want to see this country turn around, all we have to do it put THEM under "our" social security system.

  3. Oh, and an added note. WE did not see our buzzard Congressmen and women FREEZE THEIR salaries, NOW DID WE? Frankly, I'd like to see those useless turkey's salaries tied to the work they do FOR THE AMERICAN PEOPLE....AND A MASSIVE ROLL BACK OF THEIR SALARIES JUST LIKE MATCH THEIR OWN 1950 wages. Now....that seems fair, don't ya think?

  4. I urge all of you to SPEAK UP, PEOPLE. Find your voices and let your anger rip! Stand up for yourselves and your family members. Haven't you had enough of what our buzzard congress men and women have done AGAINST us and FOR themselves and their "contributors." Speak up people.

  5. Lindsay Rosenwald Dr. Lindsay Rosenwald- A Leader of Drug Development


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