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Recession Creating New Drain On Social Security

More 62-year olds opting for benefits than expected

By Mark Huffman
ConsumerAffairs.com

September 28, 2009

While the check won't get smaller, it won't rise by the anticipated two to three percent. It would be the first time in nearly three decades that's happened.

The reason is two-fold. The government's inflation index, by which it sets cost of living increases, has been mostly flat over the last year, thanks to a severe recession. The recession has also had another ill effect; an unexpectedly large number of Americans are opting to receive benefits at age 62, rather than wait until later, even though it means a reduced benefit.

In fact, applications for benefits this year are running more than 20 percent ahead of last year. That's putting an additional strain on Social Security funds.

While Social Security checks won't be going up, premiums on Medicare Part B drug coverage will. Many retirees have depended on that annual cost of living increase to offset the rising drug coverage premiums.

While recipients are unlikely to get a raise in 2010, they got a larger than expected one at the beginning of this year. The cost of living adjustment amounted to 5.8 percent – nearly double the normal increase – because of last year's soaring gasoline prices.

Douglas Elmendorf, Director of the Congressional Budget Office, says Social Securities could become more pronounced, and have a greater drag on the economy, as the population quickly begins to age, with baby boomers entering their retirement years.

"The aging of the U.S. population and rising costs for health care are making federal spending on Social Security, Medicare, and Medicaid a much larger burden relative to GDP," Elmendorf wrote in his blog last week. "During the expansion of the 1980s, federal spending on those three programs stayed close to 7 percent of GDP; in the 2013 to 2019 period, CBO projects that spending on those programs will rise from just over 10 percent of GDP to a little below 12 percent. Beyond the 10-year budget window, CBO expects that this share would continue to rise rapidly under current law."

This sobering outlook for the federal budget is likely to weigh on policy decisions for some time, Elmendorf says.

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