First Person: Are Social Security COLAs Hurting My Generation?

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According to recent estimates, there will be a COLA (cost of living adjustment) for Social Security benefits for 2013. To those current retirees or those nearing the point at which they will be claiming benefits, to hear that such raises are still occurring -- unlike in 2010 and 2011 when such raises did not happen -- is probably good news. However, for those like me, who are still a good 30 years or more from claiming Social Security, we may not be looking as favorably upon such retirement benefit increases.

This year's COLA

According to recent reports, the estimated COLA for 2013 will likely fall somewhere in the area of 1.5 to 1.7 percent. While the lower side of this range would be slightly lower than 2012's 1.7 percent increase, it would certainly be better than 2010 and 2011 when there was no increase at all.

According to CNBC, "Nearly 58 million retirees, disabled workers, spouses and children get Social Security benefits. The average monthly payment is $1,162. A 1.5 percent raise would increase the typical monthly payment by about $17."

While a $17 annual increase per monthly benefit payment might not seem like much, I have issues with giving out any sort of increase for the following reason…2033.

2033 is a big year

So what exactly happens in 2033? Well, it might not matter as much to those who are currently on Social Security or are already well into their 70s or 80s, but those of us in our 20s, 30s, 40s, 50s, and yes, even 60s, could note this as a truly significant year.

According to the Social Security Administration annual trustees' report, "Social Security and Medicare together accounted for 38 percent of federal expenditures in fiscal year 2012. Both programs will experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment and, in the case of Medicare, to growth in expenditures per beneficiary exceeding growth in per capita GDP."

The report goes on to note that, "After 2020, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2033, the same year projected in last year's Trustees Report. Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits through 2087."

Why I'm concerned

I'm not going to get into who gets Social Security benefits and why. And I don't expect more Social Security than what I've been estimated to receive through my annual earning contributions by way of annual COLAs; however, I'd at least like to get the full distribution of my current estimated benefits.

If the current trends of the administration of Social Security continue though, I would only be getting 75 percent of that amount come 2033 (I'm planning to retire well after that date) through 2087. Therefore, I guess I'm mildly confused as to why, when we know that Social Security will encounter a shortfall in 20 years, we're still giving raises to current recipients. I mean, I understand they might find them useful, and some might even rely upon them, but at what cost to future generations? Shouldn't we stop paying out extra money now in the form of annual raises so that we could at least meet the standard estimated distributions in the near future? I think that would be a reasonable and fair option for all those who have paid or are paying currently into the system.

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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.

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