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A $10,000 Social Security hit
The government won't give cost of living increases next year, eroding the effect of compound interest.
By Joe Mont, TheStreet.com
Americans, who lost a combined $1 trillion in 401k retirement plans during the stock market crash, could each lose another $10,000 in Social Security benefits as the government fails to give cost of living increases for the first time in 35 years.
The Social Security Administration this month announced that seniors won't receive an annual cost of living adjustment, which is linked to inflation, in their checks next year. The Congressional Budget Office is forecasting no increase in 2011 either. It's the first time since 1975 that the benefits won't be tied to the consumer price index.
The move has been justified because consumer prices declined 2.1% during the economic recession of the past year. President Barack Obama has proposed giving Social Security recipients a one-time payment of $250 to cushion the blow.
Compound interest acts as a snowball effect for retirement accounts. It adds a small percentage to principal and layers future interest on top of the total, repeating the process through the term of the investment. To put it in perspective, a $1,000 investment earning 10% in compound interest a year would grow to almost $45,000 after 40 years.
But this multiplying effect also means that even a slight reduction to either the principal or interest rate looms large over the years. For the average beneficiary receiving $1,161 a month, it means losing an additional $35 a month. According to an analysis by the Senior Citizens League (SCL), an advocacy group with 1.2 million members, the 2010 freeze will reduce benefits by $10,134 during the course of a 20-year retirement. If there's no increase in 2011, the loss would jump to $20,144.
The SCL study says the decrease in benefits will hit seniors hard because they've already lost significant buying power since 2000. Medicare Part B premiums have more than doubled since then, heating oil has risen 96% and the price of a dozen eggs is up 99%. According to the group, 70% of beneficiaries depend on Social Security for at least half of their income. It's the sole source of income for 15%.
"Although President Obama's call for a payment of $250 will help seniors, it is a distraction, since the zero cost of living allowance will cost retirees thousands in lost compounding throughout their retirement," says Shannon Benton, executive director of the SCL. "Today, a senior can buy just 80% of what they could have afforded at the beginning of the decade."
The group is supporting proposed legislative efforts that would restore a 3% percentage increase to benefits.
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When people start to read their bible they might start to get some
understanding on what is going on. The global economy is coming
soon. This one has to collapse first. We all will be using the same currency soon. I prefer to say that a person reaps what he sows, some say what goes around comes around etc. I would also like to remind
some people by whatever measure you judge you shall be judged.
Let's get our own house in order first . The government was set up to protect us not provide. It is greed that is bringing everything down. I am not a bible expert but i think i remember reading something to the effect of " That in those days the people will throw their gold and siver in the streets". I think it is time we ALL humble ourselves.
to Comm cents izz aaahlll id takes,
Yu & yur thoughts sound like a Commie !
I always find people who blame Obama for the nation's problems "interesting". If memory serves, he was the only one who campaigned against continuing the same BS (i.e. military tribunals, CIA operating within the U.S., fighting two draining wars and allowing the financial "wizards" to run the country) that has occurred over the past 20 years. All of the Republican candidates just wanted to continue on as if nothing was happening. And, Clinton sat on the wall in between the two - not wanting to offend but not really suggesting real change either.
Yet, when Obama arrives in office, the financial crisis is in full bloom with few real options and public support for true change falls away. So, is it Obama that is avoiding change or is the American public suddenly a little squeamish now that real effort is required for change? If you want change, you should continue to push for it. Obama is only one person; he cannot do it alone. And attacking whatever he does is not going to help.
If you have something better, let's hear your solution. I want to see that 30-page dissertation well-researched and posted online PRONTO for everyone else to see. Only at that point have you earned the right to whine.
Here's my food for thought:
Swiss Health Care Thrives Without Public Option
http://www.nytimes.com/2009/10/01/health/policy/01swiss.html?th&emc=th
To all the young and uncaring pr**ks out there I feel sorry for your mothers and fathers not only having spawned you but having to scratch a living to survive to support your center centered a**. This ain't no gift from you nor the government but payback paying into it for a lifetime of work. Yeah call it what you want Ponzi game or whatever but people earned it and deserve it. If you have to p**s and moan then take it out on Wall Street and the government for giving away your tax money to keep afloat the real ponzi game known as the stock market and Wall Street.
StockScouter data provided by Gradient Analytics, Inc.
Quotes supplied by Interactive Data.
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