Have you ever considered that one in six Americans over the age of 65 is living below the poverty line? This startling statistic came to light during our research for a forthcoming publication on financial security in retirement. It’s an alarming reality that we can’t overlook. Even more distressing is President Obama’s plan to modify the Social Security inflation adjustment, a move that many critics view as inadequate.
This new adjustment, based on a convoluted concept known as “chained CPI,” suggests that if the cost of one item rises, people can simply switch to a cheaper alternative. For instance, as the price of apples climbs, consumers might buy oranges instead; when cola becomes pricier, they could opt for a different brand. This leads to the absurd notion that when the cost of tuna increases, cat food could be the alternative.
It seems evident that Obama’s actions are influenced by larger forces beyond his control. The Social Security System has been facing an impending crisis since its inception. In 1939, John T. Flynn forecasted that Social Security would face significant financial troubles by 1970 and would be insolvent by 1980.
Although Flynn was labeled as a fringe thinker by the elites of his time, history has proven him accurate. In fact, had it not been for the Greenspan Commission and the Social Security Reform Act of 1983, his predictions would have been off by a mere three years.
The Lack of Retirement Savings
It’s hardly surprising that Social Security is nearing insolvency; the fact that it has survived this long is astonishing. Nevertheless, this reality seems to catch many people unprepared.
Despite widespread knowledge about Social Security’s impending failure, few individuals have taken proactive measures to prepare for their financial futures. Many have ignored the issue, hoping it would resolve itself, akin to an ostrich burying its head in the sand.
Unfortunately, the lack of retirement savings is now a crisis, akin to a catastrophic pileup on the busy Interstate 405 in Los Angeles. Astoundingly, three out of five families led by someone aged 65 or older have no retirement savings at all. Imagine working a lifetime without any financial cushion for retirement!
Moreover, among the remaining two out of five families that do have retirement savings, half possess less than $60,800. Tragically, Social Security serves as the primary income source for nearly half of older Americans.
Ultimately, countless individuals have structured their lives around a perilous government program right when they need stability the most—during their retirement years. It’s a perplexing predicament that many have unknowingly put themselves in.
The Impact of Small Savings: A Case Study
Tampa resident Sue Ann Flatley exemplifies the challenges faced by those relying solely on Social Security without other financial resources, such as savings or a sellable home. As reported by the New York Times, Ms. Flatley, 72, worked for 30 years as a certified nursing assistant after spending her early years raising children.
Divorced with three adult children, she receives $890 a month from Social Security. Her rent in subsidized housing is just $128, but she is burdened with bills from a credit card and medical costs from a hip replacement, which she is paying off at $50 to $100 monthly. She also grapples with regular expenses like phone, cable, and utilities.
While we extend our best wishes to Ms. Flatley, it’s clear that with some foresight, planning, and discipline, she might have avoided financial stress under Obama’s chained CPI proposal. The truth is, during her 30 years of work, if she had saved just $6 a day, she could have amassed $65,700—without even considering interest or any investment returns.
With a mere 3% return over that time, her savings would grow to $104,190; at a 5% return, this figure would reach $145,501. Just imagine how different her financial situation could have been with consistent, small savings!
“I have to be really careful with my check,” she has said. “Usually every other month, I can go grocery shopping and spend between $130 and $150. I stock up on freezer items and need to watch my diet closely because I’ve been diabetic for five years.”
Unexpected costs pose significant challenges as well. For instance, she recently faced a $72 bill for new vehicle license plates and a $28 fee to update her driver’s license address. “I would have been fine if I hadn’t needed to buy the tags for my car,” she lamented.
At Economic Prism, we critique burdensome fees like those for license plates and identification; it’s disheartening that such trivial expenses can disrupt Ms. Flatley’s already tight budget. This situation underscores the importance of setting aside a few savings each day.
In conclusion, the financial independence of retirement is achievable with careful planning and small, consistent savings. If more individuals adopted this mindset, they could significantly ease their future financial burdens.
Sincerely,
MN Gordon
for Economic Prism
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