file-3

If the health of a nation is judged by the finances of its citizens there is some cause for concern in the USA where the level of consumer debt and the lack of proper savings are truly disturbing. Credit card debt seems out of control. Card companies are happy because they make their money from the high rate of interest that they charge on month end balances. Low interest rates otherwise have some advantages; there is cheap money available for those that are able to obtain it. One way to pay off credit card balances is actually to get a personal loan at a relatively low rate of interest and clear them.

Worrying

Those on low wages and struggling to meet their bills have more reasons for concern beyond their immediate issues because the future does not look good either if they need to rely on the Social Security System, short term and again when they reach retirement.

For those who receive benefits it will mean minimal rises because inflation is inevitably low in a period of very low interest rates. Social Security benefits are essential for the well-being of many of the poorest in society and those who have retired without any significant savings.

Next year’s rise has recently been announced and is only 0.3 percent following on from no increase at all this year. It is five years since there have been any significant rises at a time when other costs have certainly risen above the rate of inflation. Healthcare is becoming increasingly expensive; medical bills  are always an issue when it comes to the elderly and arguably the poor whose lack of resources usually mean a poor diet.

Low fuel prices seem certain to keep inflation low and few amongst the poor see any direct benefit from that because they don’t really buy much gas and energy companies are notoriously slow in handing on savings to consumers.  Social Security rises reflect the cost of living adjustment (CODA) made by looking at consumer prices. This is enshrined within federal law and CODA affect around 20% of Americans.

Categories who are claiming

They include:

  • retired
  • disabled veterans
  • survivors of former federal workers who are deceased
  • current supplementary income recipients.

Retirement

With the average Social Security payment on retirement around $1,240 each month, 0.3% is very little. There is little doubt that any rise will be wiped out by the rise in Medicare Premiums that are automatically deducted before Social Security is paid out to recipients. Fortunately law does not permit a deduction of more than COLA. There is no such protection for new members of the scheme or those who have retired on high income. The new premiums have yet to be announced for next year. Incidentally the other element of regular expenditure that seems to be exceeding inflation quite significantly is insurance.

The implications are that people are tending to spend a larger proportion of their retirement fund than they should be doing; life expectancy is rising with funds going in the other direction. No one who made plans for retirement could have imagined that there would be no increase in benefits year on year.

Indeed Social Security itself is under pressure from a dwindling fund. Currently it draws at a rate of 12.4% on the initial $118,500 of income, half from the employee and half from the employer. That figure is rising to $127,000 next year and over 170 million workers will be paying next year, several paying more. Without a significant injection of funds benefits will have to reduce by around 2030, some say by as much as 25%. That injection can only come by increasing taxation which is hardly a popular policy.

Is there a Solution?

Even if taxes are raised to protect the Social Security System that does not really do more than apply a plaster to the wound. It certainly does not solve it. The answer can only be an individual one. Every person should live by following a sensible budget that shows a surplus each month and is certainly not supported by adding to debt by using a credit card to withdraw cash to support their lifestyle with online cash lenders. That only delays the day, young or old, when there is nowhere else to turn.

Related Posts Plugin for WordPress, Blogger...