Saving Social Security and Changing C.O.L.A.

 

via GIPHY

I have been reading about attempts to save Social Security of which I partake. Does Social Security need saving?

The short answer is no, as social security will not come to an end in 2033/34. Think of the S.S. trust as a bank account. You put money into the bank and the bank uses it to make loans, which is how the bank can afford to pay interest into your account. That is the basic foundation of S.S. from the beginning in 1935.

The issue is... your expenses are now exceeding the amount you are putting into that bank account as well as the interest being paid to that account by the bank.

At some point in 2033/34, the amount being withdrawn cannot exceed the deposits, which results in something like 80% of withdrawals compared to previous.

The ideas being put forth, while ignoring the likelihood of congress doing anything...

A. Raise the eligibility ages. Considering the longevity of the average American is now older... probably an good idea, but not a complete resolution. 

B. Remove the cap on taxable earnings or raise it substantially. Probably the best solution across the board and can take various forms to alleviate the issue going forward. Whether deducting only from the worker and continuing cap on employers, etc.

C. Change the method for calculating increases. This runs into changing from current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to either Consumer Price Index for All Urban Consumers (CPI-U, which is current headline used) or Chained Consumer Price Index for All Urban Consumers (C-CPI-U) or Research CPI Experimental for Americans age 62 years of age and older (R-CPI-E). 

As an elder, I can narrow down the choice fairly quickly, based on which would have benefited me. The current method of CPI-W had fairly consistently moved with CPI-U and outpaced C-CPI-U on a historical basis. It does strike me as odd that the current CPI-W year over year is outpacing those two by a large margin. 

Historically, the following is based on typical rank of inflation (from highest inflation to lowest, based on August BLS release)...

• R-CPI-E (100=1982; current 297.114 (217.8=2007, 36.42% increase since 2007)
• CPI-W (100=1982; current 268.387)(205.777=2007, 30.42% increase since 2007)
• CPI-U (100=1982; current 273.567 (210.236=2007, 30.12% increase since 2007)
• C-CPI-U (121.295=2007: current 153.715) (26.73% increase since 2007)

Based on data from August BLS release...

• CPI-W (5.8%)
• CPI-U (5.3%)
• C-CPI-U (5.1%)
• R-CPI-E (4.8%)

So obviously for the long haul, I would have preferred the R-CPI-E, based on the above, but... since December 2016 until July 2021, the changes have been this by rank... (did not update to August numbers.)

• CPI-W: 13.8%
• CPI-U: 13.1%
• R-CPI-E: 12.86%
• C-CPI-U: 11.68%

Clearly something has changed since 2016 and the near term data favors the CPI-W. 

Until something better comes along, the CPI-W remains the best option as the E in R-CPI-E stands for experimental. Not sure why so many on the left are pushing the R-CPI-E. I understand the right's fascination with C-CPI-U.

The answer to the Social Security dilemma is a combination of A and B. While it is a fun task for me to opinionize about the matter, it still falls to a future congress to actually do something.

Congress does not move on major projects unless pushed into a corner. My guess would be about 10 years from now... that corner will come into view. Truly, I do hope to be around to see that take place.