Charles Dickens’ second novel, Oliver Twist, was penned in 1837. It tells the story of an orphan who starts his life in a workhouse and then does an apprenticeship with an undertaker. He escapes from there and travels to London where he meets the Artful Dodger, a member of a gang of juvenile thieves. Early in the novel, it states that “Oliver is desperate with hunger, and reckless with misery”. He rises from the table; and walks toward the master, bowl and spoon in hand, and famously says, “Please, sir, I want some more”.
As might be expected, this did not go over well with the master of the workhouse or with Mr. Bumble. In order to make sure that the other boys who lived at the workhouse were too scared to ask for more also, Oliver was punished badly for having asked for additional gruel. He was put into solitary confinement and only allowed cold water to wash by Mr. Bumble. For those of you who would like a reminder, or who have never seen the movie, a YouTube clip of the famous scene is included below.
Today, those living on Social Security also want some more. However, they are unsure who to ask or how to get additional benefits. Social Security started providing annual cost of living adjustments in 1975. Prior to this, adjustments to Social Security were only made through acts of Congress. After massive stimulus was provided by the federal government and the Federal Reserve Bank both during and after the COVID-19 pandemic, inflation, as measured by the Consumer Price Index CPI, started rising dramatically in late 2021 until it peaked at 9.1% in June 2022.
This led to a 5.9% cost of living adjustment for Social Security in calendar year 2022. In 2023, the COLA rose to 8.7%. This was the third largest cost of living adjustment in the history of Social Security and the largest one since 1981, as you can see in our chart below.
Even though retirees were seeing their Social Security benefits rising at the fastest rate in four decades, this money was desperately needed to pay for the higher cost of nearly everything seniors buy including groceries, gasoline, medicine, etc. Inflation subsequently fell to 3% in June 2023. However, the last three months has seen this rate creep back up to 3.7%, primarily due to stickier components of inflation including housing, wages, and energy.
On Thursday, October 12th, the government released the September CPI report, which was the last one for the 2023 fiscal year. Later that morning, the Social Security Administration announced that the 2024 COLA for Social Security would drop to 3.2%. Not surprisingly, this was met with frustration from retirees who are still dealing with costs that are still rising, albeit at a slower rate.
A new survey released by The Senior Citizen League, TSCL, shows that eight in ten retirees think Congress should provide a cost-of-living adjustment that more closely reflects the inflation experienced by older adults. Retirees tend to spend a bigger share of their incomes on housing, medical costs, and travel expenses, which tend to rise at a faster pace than the general inflation rate. As a result, Social Security benefits have lost approximately 36% of their purchasing power since calendar year 2000, according to TSCL.
In December 1982, the government started publishing an additional measurement of inflation known as CPI-E. This index measures price changes specifically based on the spending patterns of the elderly. According to TSCL, the COLA for 2024 would have been 4%, .8% higher than the adjustment given, if the alternative measurement had been used. The senior citizen group is backing legislation known as The Social Security 2100 Act, which was introduced in the House of Representatives by John Larson, D-CT. This legislation would require the higher of the two CPI calculations to be given to seniors each year to help them keep up with rising costs during their retirement years.
Of course, the big question is how do we pay for all of this? In a world where the government is racking up annual budget deficits at a rate normally only seen during times of crisis or war, we hope that somebody on either side of the aisle of Capitol Hill starts taking financial responsibility more seriously. In order to reduce deficits, you need some combination of higher revenue, which primarily comes from taxes, and lower spending, of which entitlement programs are a very big line item.
I will be addressing the government debt mess over the coming weeks in these blog posts. I hope this will give you a better perspective as we head toward the 2024 Presidential and Congressional elections. In the meantime, many people in our country, including seniors, are struggling to make ends meet. They are looking to our leaders and like our friend Oliver, saying “I want some more”. They are uncertain if anybody is listening. The CFP's of Impel Wealth Management will do our best to keep you informed and aware as we continue “Moving Life Forward”.
© 2023 Jesse Hurst
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