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Social Security Benefits to Battle Energy Costs
By Kristen Pope, University
of North Carolina Daily Tar Heel
October 19, 2005
Social Security and Supplemental Security benefits will increase by 4.1 percent starting in January, the Social Security Administration announced Friday.
Benefits increase annually based on the Bureau of Labor Statistics' Consumer Price Index for Urban Wage Earners and Clerical Workers.
Experts say the jump in energy prices is the driving force behind the large CPI increase this year.
"It's a little higher than usual because of the energy prices," said Courtney Coile, professor of economics at Wellesley College.
Tim Penny, spokesman for the Social Security reform group, For Our Grandchildren, said it was at least 10 years ago that he remembers an increase this large.
The Cost of Living Adjustment will benefit more than 52 million Americans relying on Social Security and Supplemental Security benefits. Nine out of 10 senior citizens 65 years and older receive Social Security. And for 22 percent of those senior citizens, Social Security is their only source of income.
"It's a good thing we've got that in place," said Matt Moore, senior policy analyst for the National Center for Policy Analysis. "Otherwise, retirees will fall further behind."
And experts say the extra money should help senior citizens make up for the increase in energy prices.
Now, the elderly are finding it necessary to cut back on energy spending by limiting recreational driving and consolidating errands, Coile said.
She also said home heating could present a problem as the days start growing colder.
"This winter is going to be really tough," Coile said. "We will see people having to make hard choices."
The increase will come at a good time for senior citizens who might be forced to keep their homes cooler during early winter, she said.
But senior citizens might find the buying power of the adjustment to be less than they expected.
A $10.30 increase in the Medicare Part B monthly premium will leave some senior citizens with less than $30 extra a month after the increase.
In addition, the large increase in Social Security benefits also raises the issue of the future status of Social Security.
"The question is going to be how much will we be having to cut benefits," Moore said.
"The sooner we do something about it, the easier it will be to bridge the transition."
Moore said that by 2017 Social Security will be paying more than it is collecting. And by 2041 the trust fund will run out of money.
Experts attribute this deficit to greater life expectancy, lower birth rates and the large number of baby boomers about to retire.
By 2031, the number of older Americans will have increased from 37 million to 71 million, leaving a ratio of 2.1 workers to each beneficiary.
Unless changes are made, Moore said younger workers will find themselves being hit double every year, as their benefits are cut and the cost of living continues to increase.
Experts have suggested a variety of solutions to the Social Security problem.
"There are no easy options," Penny said. "Younger workers are increasingly convinced that the system will not be viable by the time they reach retirement age."
He said increasing the retirement age and discouraging early retirement would help preserve the system.
And since the cost of living increase is related to the nation's inflation rates, keeping inflation low would keep the cost of the program from growing so rapidly, he said.
Moore said another solution would be the controversial idea of implementing personal retirement accounts for young workers.
"I really like the idea of being able to take part of my Social Security and put it into an account," he said.
Moore also suggested slowly reducing Social Security benefits for middle- and higher-income workers who have 401K plans and savings on which they can fall back. This would allow the government to increase funding for the program without hurting low-income workers.
Experts say Americans will see Social Security discussed heavily again next year.
"I think Bush is going to keep pushing Congress," Penny said.
"He made it very clear at that meeting that he is determined."
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