Social Security

Social Security refers to a set of benefit programs established and run by the federal government. The Social Security program is commonly identified with old age or retirement benefits and with disability benefits. The program was created in 1935 as part of Franklin Roosevelt’s New Deal initiative. Medicare and Medicaid are also social insurance programs established and administered by the federal government, but they are separate from Social Security. Social Security is a “pay-as-you-go” entitlement program. This means that current tax revenue is used to support current beneficiaries. In other words, there are no assets set aside to fund future benefit payments. When combined with demographic trends (i.e. an aging society), the pay-as-you-go funding approach is a feature that brings into question the sustainability of Social Security. Currently, Social Security is funded largely through payroll or “FICA” taxes which are a blend of employee and employer contributions that come from taxes on the wages of workers and the self-employed. Whether you’re employed or are self-employed, Social Security taxes amount to 10.4% of earnings, with the applicable earnings capped by a ceiling that is adjusted every year. The earliest age to get retirement benefits is 62, but the longer you wait, the higher the benefits. The average Social Security benefit in January 2012 is $1,229 per month. Social Security benefits are inflation-adjusted with increases pegged to the consumer price index (CPI). Social Security is the sole source of retirement income for 22 percent of beneficiaries, and the program is the majority (greater than 50 percent) source of retirement income for 66 percent of beneficiaries.

Chained CPI Could Short-Change Retirees

Congress is considering an alternative inflation measure as part of its deficit reduction initiatives. The alternative inflation measure is known as the chained consumer price index or chained CPI . The chained CPI includes an adjustment mechanism that presumably accounts for consumers switching to substitute goods and services when a similar category of goods or services experiences rapid price increases. The overall result of this adjustment for substitutes is a price index that that...
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Why the CPI-E should be the Focus of Seniors Concerned about Inflation

A price index such as the consumer price index (CPI) is intended to provide a rough gauge of the general direction of prices in the economy.

An increasing consumer price index represents price inflation while a decreasing price index may provide an indication of...

Average Social Security Benefit Increases to $1,229 per Month

The first Social Security cost of living adjustment (COLA) since 2009 will go into effect in January 2012. Social Security beneficiaries will receive a 3.6 percent cost of living adjustment beginning in January. This 3.6 percent increase is equivalent to an average of $43 per month for each program participant. This is welcome news to 55 million program beneficiaries—many of whom are largely reliant on Social Security. After the increase, the average monthly Social Security benefit will...
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GAO Retirement Income Study Bullish on Annuities

At the request of Wisconsin Senator Herb Kohl, the Government Accountability Office (GAO) just released a study that provides an assessment of the current state of the retirement income market in the United States.

For those interested in retirement income, the study is full of interesting data and conclusions.  Some...

Retirement Planning Options

What options are available to a soon-to-be retired household that is financially constrained?  What levers can be pulled if desired retirement spending is not realistic in light of retirement savings?

The financial profile we developed in related articles offers a case study of a financially constrained household.
What options are available to a soon-to-be retired household that is financially constrained?  What levers can be pulled if desired retirement spending is not realistic in light...
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