A friend sent me a recent announcement about the Social Security Cost-of-Living Adjustment (COLA) for 2021.

“Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 1.3 percent in 2021.

The 1.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021.”

Brian Anderson tells us, “The average Social Security benefit was $1,503 per month in January 2020.”

The average recipient is going to get a $19.54/month COLA increase. I sarcastically responded with “whoopee!”

They make a great fanfare out of telling recipients about their increases.

Since January 2010, COLA increases have averaged 1.375%.

As a 15-year Social Security recipient, I know in December they send out the notification about how much you will receive the following month. Most, if not all, of the increase, is taken back with increases in Medicare Premiums.

Brian Anderson continues:

“Social Security benefits have lost 33% of buying power since 2000. TSCL’s (The Senior Citizens League) analysis found that, over a 10-year period, average Social Security benefits of $1,075 per month in 2009 lost a total of $15,258 in financial growth from 2010 to 2019 when compared to the previous decade when COLAs averaged 3%.”

Why don’t benefits keep up?

Wolf Richter explains, “Status of the Social Security Trust Fund, Fiscal 2020: Beware of Vicious Dog”:

“These annual adjustments are based on a formula that uses the “Consumer Price Index for All Urban Wage Earners and Clerical Workers” (CPI-W).

…. Actual costs of living for retirees – or really for anyone – are going to increase far faster, depending on where they live, how they live, and where they spend much of their money. Even if the actual cost of living increases by only 1 percentage point faster than the annual COLA every year, after 10 years, 20 years, or 30 years, you’re talking about a serious deterioration in purchasing power of the Social Security payments. Inflation will eat more than retirees’ lunch.

So, Social Security will be there for you, but…

You can rely on the Social Security payments. But they will lose purchasing power. The purchasing power of the payments will diminish every year, year after year, because the COLAs are not enough to cover the actual increases in the cost of living.

This is just a simple fact, and it’s not an accident, it’s purposefully built into the system. And this decline in purchasing power might shave 20% or 30% off your standard of living over the first 20 years of retirement. If it was tough to live on Social Security early on, it will be brutal after 20 years.”

More government shells in the game

Wolf Richter tells us the Social Security Administration paints a rosy picture of the Trust Fund:

“The Social Security Trust Fund – officially the Old-Age and Survivors Insurance (OASI) Trust Fund – closed the fiscal year 2020 at the end of September with a balance of $2.81 trillion, the second-highest fiscal-year close, behind 2017, up by $6.8 billion from a year ago, and up by $10 billion from two years ago, according to figures released by the Social Security Administration.

The Trust Fund invests exclusively in special-issue Treasury securities, of two types: $2.797 trillion in interest-bearing long-term special-issue Treasury securities and $14 billion in a short-term cash management security, called “certificates of indebtedness.” These securities are not publicly traded…. The Trust Fund purchases them at face value, and the US Treasury redeems them at face value.

…. By investing exclusively in Treasury securities that are not exposed to market whims, the Trust Fund follows the most conservative – meaning, low-risk – strategy possible.

…. In September, the weighted average interest rate earned on the securities was 2.53%, still higher than current Treasury yields, thanks to long-term securities that carry the higher interest rates of yore. But since 2009, it has fallen by about half. And at current interest rate policies, the declines will continue.

Despite the 27% growth of the Trust Fund from $2.22 trillion in 2009 to $2.81 trillion in September 2020, interest income has dropped by 30% over the same period:

The Trustee Report for fiscal 2020 – the 2021 Trustee Report – is not yet available, but we know already that the Trust Fund grew by $6.8 billion this year. So far so good.”

So far so good – by what measure?

Hard-working Americans have been paying into their retirement fund over their working career. The government spent the money to pay current bills and put Treasury Bonds into the fund.

The US Debt Clock lists Social Security promises as “unfunded liabilities”, meaning there is no money, only politicians’ promises to pay current and future retirees. Currently, it is approaching $21 trillion, in addition to $32 trillion in Medicare Liabilities.

Things went well for the politicos when the money they collected from taxpayers exceed the benefits paid, they happily spent the surplus. The Heritage Foundation shows us that things changed around 2010:

The government now spends more in benefits than it collects and borrows the difference – in addition to all other government borrowing and spending.

Heritage Foundation paints a bleak picture of what it would take to make social security solvent”:

They conclude:

“One of the biggest advantages of Social Security is that it is supposed to provide guaranteed benefits, but what was once considered a sure thing is increasingly uncertain.

In fact, for anyone under the age of 47, the only guarantee is that Social Security cannot provide its scheduled benefits. Even people already retired and receiving Social Security could have their benefits cut within 10 years to 15 years.

Not surprisingly, more than 80 percent of Generation X and Millennials are concerned that Social Security will not be there for them when they retire.

…. Since 2010, every dollar that workers contribute in payroll taxes has gone straight out the door to pay retirees’ benefits. This is unfair to current workers and unhelpful to the American economy because shifting incomes from younger to older generations displaces savings, reduces productivity and output, and results in smaller incomes for younger and future workers. According to Heritage Foundation analysts, this lack of investment opportunity on Social Security taxes will strip $4,320 worth of retirement income per year from someone who makes about $20,000, while extracting $47,712 per year of potential retirement income from someone who makes about $60,000 per year.” (Emphasis mine)

What happens when the fund is depleted?

AARP tells us:

“According to the 2020 annual report of the Social Security Board of Trustees, the surplus in the trust funds that disburse retirement, disability and other Social Security benefits will be depleted by 2035.

That does not mean Social Security will no longer be around; it means the system will exhaust its cash reserves and will be able to pay out only what it takes in year-to-year in Social Security taxes. If this comes to pass, Social Security would be able to pay about 79 percent of the benefits to which retired and disabled workers are entitled.”

The government collects receipts, pays benefits, and reduces the balance in the trust fund by the shortfall. Each year the treasury pushes a button, theoretically paying interest into the trust fund and the balance goes up.

Talking about the trust fund is moving shells around the table hoping the stooges don’t realize the game is rigged.

The politicians could solve the problem by passing a law requiring the government to pay 10% interest into the Trust Fund; thereby “protecting and securing” the retirement income for all Americans. Just a simple matter of moving the shells quickly around the table.

The trust fund would grow, politicians would rejoice; however, it would not change a simple fact. When you look at cash flow, the deficit between receipts and benefits paid continues to grow each year. No matter how they want to fudge the number in the trust fund, America’s retirement future is dependent on ever-growing political hype and promises.

Social Security is an annuity where the insurer (politicians) can unilaterally make changes, has a history of doing so, and the customer has no recourse. FDR was wrong!

The Fed creates fake money out of thin air, buys government debt from authorized dealers, and pretends that all is well. Friend Chuck Butler has warned, eventually, no one will want to hold our dollars. Inflation will destroy the buying power of our benefits.

What can be done?

Many experts recommend downsizing, living below your means, saving, owning gold, and diversification to grow and protect your wealth.

Discussing what congress should do is a waste of time; they play the shell game and will continue to do so.

Our Constitution was designed to have citizen legislators who sacrifice to temporarily serve their country; not a permanent ruling class. Congress kicks the can down the road, accuses the other party of wanting to cut social security for political hay, but does nothing. They ignore the problem, worried more about the next election cycle.

Without congressional term limits, and representatives willing to solve problems for the benefit of all, the shell game will continue.

I once worked with a good old country boy named Charlie H. He became a wealthy man, but often said, “When my daddy died, he left me 40 acres and a mule and I don’t ever plan on selling it.” Those who protect themselves will come out on top.