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Is the Social Security Increase in 2014 Enough?

Every year, Social Security reviews and typically increases both the amount it pays recipients and the wage base it taxes to cover those benefits. The payment increase is supposed to help recipients protect their eroding purchasing power from inflation, while the increase in the tax base is intended to ensure the program can keep paying benefits.

The Social Security increase in 2014 for recipients encompasses a 1.5% hike to payments and an increase to $117,000 from $113,700 in the "taxable maximum" subject to Social Security taxes. The payment increase does fully cover the official inflation rate over the fiscal year ending in September 2013, and the salary base increase subject to taxes does move up with the national average wage index. There's every reason to believe the changes were made accurately, but there's also good reason to believe they're not enough.

Why the Social Security increase in 2014 is not enough
From the perspective of a typical retiree receiving Social Security, that 1.5% raise likely does not fully cover his or her increased expenses. That's because the inflation rate used to calculate Social Security's increases is the Consumer Price Index for Urban Wage Earners and Clerical Workers. In general, retirees face different cost pressures from most working-age people, with health care costs typically taking a greater toll as people age.

In addition to the fact that people generally spend more on health care as they age, the unfortunate reality is that health care costs in general have been rising faster than the overall inflation rate. Add those two facts together, and a typical retiree faces a double-barrel increase in health-care-related costs, one from aging and the other from health care cost inflation. With benefit increases that don't fully cover that large and rising cost, it's likely that retirees dependent on Social Security are losing ground.

From the perspective of an employee who will see more of his or her wages subject to the tax due to the wage base increase, it can seem like more money lost to the program, never to be seen again. Social Security's own trustees claim that the program's Trust Funds will run out of money by 2033, after which payments will likely be slashed to roughly 77% of promised levels.

This means that without a change to the law, people with another 19 years or more before they can collect are on track to never get the full Social Security they may anticipate. Likewise, even current recipients who expect to be alive 19 years from now are also at risk of seeing their payments cut.

What can you do about it?
The reality is that Social Security was never meant to be your sole source of income in retirement. The Social Security Administration claims that the program covers around 40% of the typical retiree's pre-retirement earnings. Unless you can cover your costs of living on that amount -- or even less, once the Trust Funds empty -- you'll need another source of retirement income. That holds true whether the Trust Funds empty or whether the political class manages to find a solution to that long-term crisis.

Your best shot to get that source of retirement income comes through investing. Every little bit you can sock away today is money that can compound on your behalf to be ready when you need it later. The sooner you start, and the more you can save with every paycheck, the better off you'll be in retirement, even if you wind up earning lousy long-run returns.

If you're already in retirement and collecting benefits, unless you can go back to work and add to your Social Security earnings record, there's little you can do to increase your benefit more than that 1.5%. Still, the more you can do to keep your other costs of living down, the more you'll be able to make your money stretch. The further your money stretches, the better your chances will be of covering those unavoidable costs (like health care) that may be rising for you faster than official inflation.

Even weakened, Social Security will still be there
In spite of its unsolved long term problems, Social Security still plays a key role in your financial security in retirement. In our brand-new free report, "Make Social Security Work Harder For You," our retirement experts give their insight on making the key decisions that will help ensure a more comfortable retirement for you and your family. Click here to get your copy today.


Read/Post Comments (23) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2013, at 11:55 PM, cvbasler wrote:

    No, if is NOT enough ! Our increase in Medicare premiums ate it ! Obama and his 'family' ought to be made to live on it....even though THEY DID NOT EARN IT....like we did................!

  • Report this Comment On December 24, 2013, at 5:21 AM, ernestovaleraj1 wrote:

    Please kindly sir and madam increases the Social Security System by 1000000,00

  • Report this Comment On December 24, 2013, at 7:37 AM, tupac1 wrote:

    i think all of capitol hill should make 7.45 and hour and see how it feels. lets see the cost of living goes up 3 percent and we get just a little over one percent. if we could cut the wages of the politicians in washington who are doing a wonderful job of running the united states into the ground they could afford to give the american people what they really deserve

  • Report this Comment On December 24, 2013, at 8:04 AM, 12yogi wrote:

    Just remove the damned cap and put Social Security back into an interest bearing fund where politicians cannot touch it. Self Sustaining forever!

  • Report this Comment On December 24, 2013, at 8:33 AM, RWolf wrote:

    It just amazes me that SS is always on the brink of bankruptcy but never welfare, we need to get SS out of the general fund and tell the politicians to keep their hands off of it, and remove from office any politician that says its an entitlement, entitlements are unearned, SS is payed for by us

  • Report this Comment On December 24, 2013, at 11:54 AM, Matokeagle wrote:

    It is funny, every member of Congress and both the Vice President and the President get a 25% pay INCREASE and yet retired and disabled people only get a 1.5% COLA increase. I wish that Politicians would take a 70% PAY CUT and then those that are retired or disabled would get a 50% increase.

    Oh, and to let you know, the 1.5% increase for me was only $11 USD per month. My Disabled Bus Pass cost me $17.50 USD. Not much of a difference.

  • Report this Comment On December 24, 2013, at 12:45 PM, zgriner wrote:

    When people scream "Lay off my SS or Medicare benefits, I EARNED IT", I want to scream.

    Exactly what did they earn?? What are they entitled to?? Do they have any paperwork outlining what they are supposed to get, as if it were a whole-life insurance policy, or some kind of guaranteed annuity??

    Social Security and Medicare are Ponzi-schemes run by politicians. The people who pay into the system are nothing more than entries in a ledger just like Bernie Madoff kept. The benefits are politically motivated, having little to do with investment returns. The surpluses are accidents of demographics, meant to forestall the collapse of these systems as the baby-boomers move through the system.

    The best thing that Congress can do now to bring Social Security into balance is to stop the COLAs, as painful as that may be.

  • Report this Comment On December 24, 2013, at 1:42 PM, coffeehound wrote:

    I found a very good article by Sen. Don Riegle in the HuffingtonPost concerning today's problems with Social Security. Since it may be a violation of Fool's Rules to post a URL I am giving you the status needed to search at Google or Yahoo..

    sen-don-riegle/post_1901_b_845106.html

    It is well worth your time taken to read it.

  • Report this Comment On December 24, 2013, at 1:45 PM, DonRich wrote:

    1.5% is not only a joke, it is condescending and insulting that the Fed thinks we are so stupid that we can't do a little bit of math with our bills. Everything I buy is FAR MORE than 1.5% higher than last year. What parts of their calculation includes the rise in the cost of rent, car insurance, food, medicine, gasoline, utilities, and all of the every day purchases that I have to make.

  • Report this Comment On December 24, 2013, at 2:21 PM, really888 wrote:

    FYI for everyone: The Social Security Trust Fund is NOT EMPTY! The Fund has $3 TRILLION in bonds from the U.S. Treasury. The government has been taking funds from Social Security almost from the beginning because there was so much money JUST SITTING in the Trust Fund, the government REFORMED the Social Security system, which allowed the government to then "borrow" funds, and replacing the funds with bonds. The government has since then added more social programs to Social Security, such as Medicaid. Social Security is not just for retirees, and the fund now has a total of 6 different programs that receives payments the Social Security fund.

    The government bonds that are in the S.S. Trust Fund are a "special" bond and CANNOT be redeemed, or sold, to anyone but the U.S. Treasury. THAT IS THE REASON THAT THE GOVERNMENT KEEPS TELLING THE PUBLIC THAT THE S.S. FUND IS EMPTY. THE TREASURY/GOVERNMENT WANTS TO GET RID OF THE FUND BECAUSE THEY CAN THEN "WIPE OUT" THE ENITRE $3 TRILLIONS DEBT THAT THEY OWE TO THE FUND.

    Check out the information for yourself by researching the History of Social Security.

  • Report this Comment On December 24, 2013, at 3:17 PM, coffeehound wrote:

    @zgriner: We as Americans have been forced to pay into SS and Medicare our entire working careers with the promise that those programs would be there when we retire.

    The people have every right to protest the way Congress dips into The Social Security funds and they also have the right to speak out about the ever increasing Medicare premiums, deductibles, and out of pocket costs we face thanks to Obamacare.

    Some like myself have no retirement to live on thanks to the recession and we depend on SS. So at age 69 I have returned to full time work just to assure I can pay my hospital bills, and I feel I have earned the right to protest the actions of the elite who try to take my SS benefits and Medicare from me.

    So I will continue to say - Keep your hands off my Social Security. I earned my SS benefits according to the laws set forth April 19, 1935.

    And I will also continue to say - Keep your hands off my Medicare. under the leadership of President Johnson in 1965, Congress created Medicare under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history.

  • Report this Comment On December 24, 2013, at 3:31 PM, ffbj wrote:

    Yes, i think coffeehound is correct. It is a promise to pay. Not getting into the rightness or wrongness or any other aspect of ss, just the facts.

    In regards to the purport of the article, that a 1.5% increase is too little, I find that to be reasonable and correct also. 2.5% would be closer to the mark.

    Have a nice holiday season all. Wishing you all the best!

  • Report this Comment On December 24, 2013, at 3:32 PM, Chontichajim wrote:

    It is not realistic to expect cost of living increases without also expecting changes to inputs for Social Security.

    Rate increases should be tied to some kind of Treasury interest rate rather than COLA, and then only after the Social Security fund is moved to a well regulated private holding company (something like Chile). Until then, no payment increases and no borrowing from the fund.

    As it is we pit those making inputs against those taking withdrawals and neither is satisfied.

  • Report this Comment On December 24, 2013, at 5:07 PM, PatCampbell wrote:

    Seeing how wealth in one's life comes and goes, wouldn't it be better to raise the taxed level and put in an inflation adjusted cap for recipients? Also, an inflation adjusted means tested minimum?

  • Report this Comment On December 24, 2013, at 9:03 PM, VegasSmitty wrote:

    When the sheeple wake up and overthrow the current administration, the people will take control of the country again, may none of the 535 be left alive!

  • Report this Comment On December 24, 2013, at 9:17 PM, mypal00000 wrote:

    Why is it welfare recipients have received an increase of 30% under this president and SS has received less than 4%? Why would that be?

  • Report this Comment On December 24, 2013, at 9:42 PM, sayhonkmon wrote:

    No, the increase is not enough because the state of Florida does not give the seniors a break on property taxes; Florida makes us pay SCHOOL BOARD TAXES when we have NO CHILDREN!

    Only people that have children in school should pay for this service. Leave the old people's retirement money alone. 50% of my Florida property taxes go to the SCHOOL BOARD!!!

    Also, when I see President Obama waste $7 million dollars just for his Christmas vacation, it makes me want to puke!!! Obama should be paying this travel expense himself!!

  • Report this Comment On December 25, 2013, at 12:42 AM, Chuckienemo wrote:

    I work at a HUD subsidized apartment complex for the elderly and the increase in Social Security increases their rent. So in reality, there is no extra money for the elderly, the government takes it all back.

  • Report this Comment On December 25, 2013, at 7:57 AM, pgagno wrote:

    not enough , my cost of living up 15% ,so +1.5% is a joke !!!!!, ?????

  • Report this Comment On December 25, 2013, at 10:03 AM, fromme123 wrote:

    Seniors are being squeezed on all sides. We don't have the skills to manage our assets or can we afford financial manages.

    Most of us invested in CD's because they are easy to manage and are insured. (at our age we can not afford to take losses. for every dollar lost it takes 2 to replace the loss)

    So… CD's are at or close to zero, medical costs are up, food and housing are reasonably stable, energy costs are up as are most other items for quality of life what is withheld from my social security check is up, (I netted 5.00 on this current increase)

    We need to reign in costs for waste like shutting own the government and the fighting between tea party, conservatives and the liberals.

  • Report this Comment On December 25, 2013, at 10:34 AM, skypilot2005 wrote:

    On December 25, 2013, at 10:03 AM, fromme123 wrote:

    "Seniors are being squeezed on all sides."

    Most of you voted for OBama and the Democrats. You are getting what you deserve.

  • Report this Comment On December 25, 2013, at 10:55 AM, dean3211864 wrote:

    Ive been on ss for 10 years and the first 3 years I didn't get a raise cause they say that the cost of living hadn't gone up well I don't see it that way everything has gone up food clothing living expenses and medical. if the government would stop dipping into are money they would have the money to give to those who deserve the reward of getting more money but the government cant keep its fingers out of ss and what does 13.00 dollars get you which is the total reward I got and every other American got that is on social security. and when the government shuts down we still pay them even if there not working WHY do they get paid for not doing there job if they got cutoff without pay it seems to me that then they might learn a lesson instead of spend spend spend oh but the government can spend as much as they want on war and helping out other people in the world instead of there own this government sucks

  • Report this Comment On December 25, 2013, at 9:40 PM, whyaduck1128 wrote:

    You could increase the monthly benefit by 101.5% and most if not all seniors would say "it's not enough". Senior citizens are no different from anyone else--what they get is earned, deserved, and not enough, what anyone else gets is unearned, undeserved, and excessive.

    It's just like the REAL definition of whose taxes should go up--"the rich", meaning "anyone who makes a dollar more than ME".

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Chuck Saletta
TMFBigFrog

Chuck Saletta has been a regular Fool contributor since 2004. His investing style has been inspired by Benjamin Graham's Value Investing strategy, and he manages the real-money Inflation-Protected Income Growth portfolio on Fool.com based on many of Graham's principles. Chuck also can be found on the "Inside Value" discussion boards as a Home Fool.

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