Senior Finances and Retirement

Millions of retired Americans depend on getting a Social Security payment each month to help make ends meet. But events in Washington could disrupt those payments.

It’s all because of something called the “debt ceiling,” which is the maximum amount of money the U.S. government is authorized by law to borrow. Each year Congress must vote to increase the amount to keep the government from defaulting.

This year, things are a little dicey. Since January Republicans have held a narrow majority in the House and have voted to increase the debt ceiling but only if Congress also votes to cut spending. Democrats still control the Senate and are insisting on a “clean” debt ceiling bill, promising to address spending in separate legislation.

So far, neither side has shown any willingness to budge and the deadline looms in early June. If there is no agreement the U.S. government would be in default and limited in what it can spend. Should that happen, seniors on Social Security could feel some pain.

“A default would hit the nation’s seniors especially hard, as the payment of Social Security, Medicare, and Medicaid benefits would be jeopardized,” the National Committee to Preserve Social Security and Medicare said in a statement. “This could be devastating for the 65 million older Americans on Social Security and the 63 million beneficiaries of Medicare.”

‘May not be made on time or in full’

The advocacy group has warned that without the legal authority to borrow beyond the current debt ceiling, Social Security, Medicare, Medicaid, and other payments “may not be made on time and in full.” The group says even a short delay in the payment of Social Security benefits would pose a burden for the millions of Americans who rely on their earned benefits to pay for out-of-pocket health care expenses, food, rent and utilities. 

What are the odds of a U.S. government default? Experts say it’s hard to gauge because it has never happened before.

In past government shutdowns, when lawmakers couldn't agree on a budget, there has been money available to pay entitlement benefits. A government default is uncharted territory.

Even if there is a default, Ed Mills, Washington policy analyst at Raymond James, believes it would be short-lived because of the political pressure it would unleash.

“If there is a scenario where seniors are not getting their Social Security checks, there would be a near immediate resolution of this fight,” Mills told CNBC.

Mills said the chances of Social Security checks not being sent are “exceptionally low.”

Seniors living on fixed incomes may be struggling with high inflation, but help could be on the way. The Senior Citizen’s League’s (TSCL) annual estimate for Social Security adjustments predicts that monthly benefits could rise to a near-record 9.6% next year.

The government adjusts Social Security benefit payments each year to account for inflation. With inflation running red hot in 2022,  TSCL predicts that we could see the largest cost of living adjustment (COLA) since 1981 next year.

The COLA is based on inflation readings by the Labor Department in July, August, and September. Even though some economists believe inflation peaked last month, when the Consumer Price Index (CPI) dipped to 8.5%, inflation is not expected to drop that much during this month and September.

The Social Security Administration will announce the increase in October, with the first payment reflecting the increase showing up in January 2023. Mary Johnson, policy analyst and editor of The Social Security and Medicare Advisor newsletter, estimates that payments could increase by as much as $159 a month.

"That’s really phenomenal," Johnson told NBC News. "Effectively, no one receiving Social Security at the moment will have received a COLA this high." 

A 9.6%  increase would follow last year’s 5.9% adjustment, which was the highest in decades. Because of low inflation, some years leading up to 2022’s adjustment saw no increase at all.

Medicare premiums are also likely to rise

Social Security recipients who are also on Medicare would likely not see the full amount of any benefit increase. The cost of Medicare premiums is deducted from Social Security payments and, because of inflation, those premiums are probably going to be more expensive in 2023.

Johnson believes even a 9.6% increase in benefits would probably not be enough for many seniors to keep up with the cost of living in a high inflationary environment. She cites a TSCL survey that found 37% of participants received low-income assistance last year.

A 2017 study by researchers at the Social Security Administration found that nearly 20% of Americans aged 65 and over received at least 90% of their total incomes from Social Security. 

Could the Social Security Administration (SSA) raise monthly Social Security checks to help seniors cushion the blow of inflation’s 40-year high? The Senior Citizens League says it’s highly possible based on a trusted running estimate for next year’s Social Security Cost of Living Adjustment (COLA). 

If an increase occurs, the average retiree would see their SSA benefit of $1,668 grow by $175.10 – about 10.5% – per month, which is much better than originally expected. A separate 2023 COLA estimate from the Committee for a Responsible Federal Budget predicted a 10.8% increase.

“If inflation runs ‘hot’ or higher than the recent average, the COLA could be 11.4%,” said Mary Johnson, Social Security and Medicare policy analyst with The Senior Citizens League. “If inflation runs ‘cold’ or lower than the recent average, the COLA could be 9.8%.”

If that 11.4% COLA increase happens, it would be the second highest increase in history behind the record 14.3% increase in 1980, the last time seniors saw a double-digit increase.

Medicare premiums may soon head lower

According to The Senior Citizens League, financial conditions for seniors have been deteriorating in recent years. The group estimates that SSA benefits recipients have lost 40% of their buying power since 2000.

“That’s the deepest loss in buying power since the beginning of this study by The Senior Citizens League in 2010,” Johnson noted.

Luckily, CNN reports that seniors might soon get a break when it comes to Medicare premiums. Earlier this year, older consumers were forced to deal with a 14.5% spike in Part B premiums, a move that raised monthly payments for those in the lowest income bracket from $148.10 to $170.10 per month. That increase was largely due to a big jump in the price for Aduhelm, a treatment for Alzheimer's disease. 

However, after some pushback from the U.S. Food and Drug Administration (FDA), the drug's manufacturer cut prices, and the Centers for Medicare and Medicaid Services limited coverage for the medication. The good news for seniors is that this adjustment will likely lower 2023 premiums. A final decision on that is expected to come this fall. 

At the present rate of inflation, the Social Security cost of living adjustment (COLA) for 2023 could be as high as 8.6%. For seniors, that’s the good news.

But the Senior Citizens League, which issued that estimate, also says inflation has caused Social Security benefits to lose 40% of their buying power since the year 2000. During most of those years, there were minimal annual increases in benefits.

The league’s new study found that Social Security recipients could buy 30% less than they did in March 2021. Today, the study shows that seniors’ purchasing power is down about 40%

To arrive at that result, the study compared the growth in the Social Security COLA increases with the rise in the price of 37 goods and services that are typically used by retirees. While prices rose in almost every spending category, benefits were impacted the most by sharp increases in energy costs for home heating, gasoline, and higher food prices. This year, there was a 14.5% increase in Medicare Part B premiums.

Inflation hits retirees particularly hard

Peter Anastasian, senior vice president and a financial adviser at Wealth Enhancement Group, says inflation is particularly damaging to seniors who live on a fixed income. Not only do things cost more, but the current bear market has also reduced the value of their investments.

Even though Social Security benefits rose by 5.9% this year, Anastasian says that’s not enough to help seniors cope with the current inflation rate of more than 8%.

“The increase in Medicare premiums increased substantially as well, offsetting a large part of the Social Security increase,” Anastasian told ConsumerAffairs. The cost of basic necessities, such as rent, phone, gas, and food have increased well over 10% year-over-year, and so seniors have been feeling the impact of inflation more so this year than ever before.”

Expenses rise 130% since 2000

The Senior Citizen League’s study of reduced purchasing power found that Social Security COLAs have increased benefits by a total of 64% since 2000. However, typical senior expenses through March 2022, grew by more than double that rate – 130%.

There is no guarantee that next year's COLA will rise by 8.6%. The benefit increase is determined by averaging the Consumer Price Index (CPI) for July through September.

Some economists believe inflation could taper off over the summer, which would be good news for the U.S. economy as a whole. But it would also mean the Social Security COLA would likely be less than 8.6%.

With inflation on the rise, Social Security recipients will get a raise next year. The question is, how much?

The latest estimate from The Senior Citizens League, an advocacy group, predicts a cost of living adjustment (COLA) of between 6% and 6.1%. The estimate came as the latest consumer price index data was released Tuesday.

The increase will be reflected starting in January 2022. An increase within the predicted range would be the largest since 1982, when the COLA was 7.4%.

The government bases the COLA on the CPI, a measure of inflation, through September. Mary Johnson, Social Security policy analyst for The Senior Citizens League, says there is one more CPI report before the government officially announces the increase in October.

“This year is particularly difficult to forecast with certainty,” Johnson said. “The inflation patterns, caused in large part due to the COVID-19 pandemic, were unprecedented in my experience.” 

While a 6% increase in monthly payments would no doubt be welcome news for seniors, Paul, of Ardara, Pennsylvania, notes that Social Security recipients don’t always reap the gains of a benefit increase because Medicare premiums are deducted from Social Security payments.

“Cost of Medicare needs to stop increasing every year after they increase your Social Security,” Paul wrote in a review of Aetna dental insurance. “The people lose every time.”

Inflation may have peaked

Johnson said it is likely the Social Security benefit increase will be at the low end of the projection because inflation appears to be moderating. But she says there is little doubt Social Security recipients will receive a larger benefit increase than they did in 2021.

“Higher gasoline and transportation prices in particular are behind the high COLA estimate for 2022, because those expenditures are given greater weight or importance in the consumer price index that’s used to calculate the COLA,” Johnson said. “That works to the advantage of retired and disabled beneficiaries for the COLA payable in January of 2022.”

Since 2010, COLAs have averaged just 1.4%. Inflation was so low that no COLA was payable at all in 2010, 2011, and 2016. In 2017 the COLA was almost zero, at just 0.3%.

With inflation surging in the U.S., Americans on Social Security could receive a significant pay increase next year.

Each year, seniors’ monthly benefit is adjusted to account for inflation. In the last two decades, as inflation has largely been absent from the economy, the monthly payment has risen only slightly. In 2021, the increase was 1.2%. That could change in 2022. 

The Senior Citizens League has calculated next year’s cost of living adjustment (COLA) and projects that Social Security benefits will increase by 6.1%. It would be the biggest increase since 1983, an era when inflation was increasing at double-digit rates.

The COLA is based on the Consumer Price Index (CPI) for Urban Consumers in July, August, and September. It’s also heavily weighted for the price of gasoline, which has risen sharply in recent months. The COLA will be announced in October, and the first adjusted benefit payment will be made in January.

Changing the formula

Meanwhile, there’s a move in Congress to change the way the benefits COLA is formulated, and that could increase benefit payments to seniors even more. Last week, Rep. John Garamendi (D-Calif.) introduced a measure to base benefit increases on the cost of things seniors use most, such as health care.

“Seniors and disabled citizens rely on Social Security benefits for a large portion of their income, and it’s about time for Social Security benefits to reflect their lifestyles,” Garamendi said. “Using a COLA that actually reflects how retirees spend their money – especially in health care – is a no-brainer that will increase benefits and make Social Security work better for the people it serves.”

Garamendi’s bill has already attracted broad support, with 23 original co-sponsorships and senior advocacy groups urging its passage. Nancy Altman, President of Social Security Works, supports the change, saying the current way inflation is measured doesn’t reflect the rapidly rising costs of prescription drugs.

“By more accurately accounting for the costs faced by Social Security beneficiaries, this legislation better prevents the erosion over time of Social Security’s modest but vital earned benefits,” she said.

With winter rolling in and the pandemic still hanging around, many seniors are looking to find more ideal vistas to retire to. The hard part is finding a close-to-perfect fit and wading through the thousands of options available with niche retirement communities.

Coventry Direct, a company specializing in life insurance, analyzed over 2,600 55+ communities, assigning numerical values for factors like affordability, amenities, and security features. Out of that came an overall score for each community which Coventry used to determine the “top retirement communities” in the U.S.

Winners and losers

When ConsumerAffairs took a look at the raw data the analysts had to pore through, it was apparent that retirees simply can’t make a snap judgment when it comes to picking somewhere to move to. There’s the cost of housing, the contemporary wrinkle of being tech-friendly, and a countless number of amenities that seniors want to make sure are available to them to make their move worthwhile.

"One of the biggest takeaways from this project that we want to emphasize is that while many of the top-performing communities are located in traditional retirement locales like Florida, Arizona, and California, our analysis uncovered vibrant, high-quality communities teeming with the kinds of amenities that make life after 55 a dream throughout the country,” Josh Koebert, a research assistant for Coventry Direct told ConsumerAffairs.

“With a little research, most people should have no problem finding a 55+ community that checks all the right boxes for their lifestyle and geographic preferences."

Taking home the top spot in the survey was ‘The Villages’ -- a site US News & World Report called “Disney World for Adults.” Situated between Orlando and Ocala, Florida, the location was rated as the “best retirement community,” scoring 95.3 out of a possible 100 points. In second place is the 11,000-acre ‘Sun City West’ in Arizona, about 30 miles from Phoenix. It received a total score of 91. 

When it came to the illusion that all retirees wind up in Florida, the analysts did some myth-busting of their own. “Our rankings actually show that it is possible to find incredibly high-quality retirement living all across the nation,” they wrote. 

“Only three of the top ten communities were located in the Sunshine State, with just as many Arizona locations showing up at the top of the rankings. Nevada, South Carolina, Texas, and California also make appearances in the top 10.”

Full rankings

From top to bottom, here are how the top 25 stacked up overall:

1. The Villages (The Villages, FL)

2. Sun City West (Sun City West, AZ)

3. Sun City Anthem (Henderson, NV)

4. On Top of the World (Ocala, FL)

5. Sun City Palm Desert (Palm Desert, CA)

6. Robson Ranch (Denton, TX)

7. Canoa Ranch (Green Valley, AZ)

8. Sun City Hilton Head (Bluffton, SC)

9. Quail Creek (Green Valley, AZ)

10. Lely Resort (Naples, FL)

11. Heritage Village (Southbury, CT)

12. Bella Vista Village (Bella Vista, AR)

13. Lake Ashton (Lake Wales, FL)

14. Stonecrest (Summerfield, FL)

15. SaddleBrooke Ranch (Oracle, AZ)

16. Sun City Peachtree (Griffin, GA)

17. Green Valley Recreation (Green Valley, AZ)

18. Sun City Grand (Surprise, AZ)

19. Pelican Preserve (Fort Myers, FL)

20. Sun City Shadow Hills (Indio, CA)

21. Sun City Lincoln Hills (Lincoln, CA)

22. Timber Pines (Spring Hill, FL)

23. Tellico Village (Loudon, TN)

24. Oak Run (Ocala, FL)

25. Siena (Las Vegas, NV)

Amenities scores vary from community to community

When it comes to amenities, the researchers say seniors favor three import factors -- exercise and wellness, entertainment, and outdoor activities. In the overall amenities ranking, there were six communities that had perfect scores:

• Sun City Anthem (Henderson, NV)

• Sun City West    (Sun City West, AZ)    

• Sun City Palm Desert    (Palm Desert, CA)

• Laguna Woods Village (Laguna Woods, CA)

• Heritage Village (Southbury, CT)    

• The Villages (The Villages, FL)

You think the government's always right? Think again. Mistakes in Social Security calculations are surprisingly common.

Government watch groups estimate that the Social Security Administration (SSA) makes mistakes on at least 3 percent of the total official earnings records it keeps.

The best way to keep an eye on your personal Social Security records is to carefully review your yearly Social Security statement, and dont be surprised if you uncover an error.

Heres what you should know.

Earnings Errors

Social Security benefits are based on your 35 highest-earning years as reported to the government by your employers. If an employer has given the government incorrect salary data or if the government has erred in recording the information, you want to get it corrected as quickly as possible.Otherwise you may not get the full amount youre entitled to when you retire.

So, when you receive your annual Social Security statement, take the time to compare the earnings listed in the statement with income listed on W-2 forms in your tax records. And if you spot a discrepancy, follow these steps:

Call your nearest Social Security office (see www.ssa.gov/locator or call 800-772-1213 to get the number) to report the error. Some corrections can be made over the phone. However you may need to schedule an appointment and go in with copies of your W-2 forms or tax returns to prove the mistake, or you can mail it in.

If you suspect a discrepancy but dont have backup records, the SSA may be able to use your employment information to search its records and correct mistakes. If the SSA cant locate your records, youll need to contact the employer to obtain a copy of your W-2 for the year in question.

Once your earnings record is corrected, SSA will send you a confirming letter. If you dont receive the confirmation within three months, contact SSA again. And double-check the correction by making sure it appears on next years statement.

If corrections arent made on the next statement you receive, start an appeals process (see www.ssa.gov/pubs/10041.html).

Note: SSA statements are mailed annually (about three months before your birthday) to everyone age 25 and over who is not already receiving Social Security benefits. If youre not receiving yours, see www.ssa.gov/mystatement.

Other Mistakes

Earnings miscalculations can also happen if the SSA didnt have your correct mailing address. If you dont receive your annual statement, thats a tip-off.

If there is a mistake, contact the IRS (SSA depends on the IRS for addresses) at 800-829-3676 and ask them to mail you the Change of Address form 8822, or print it off at www.irs.gov/pub/irs-pdf/f8822.pdf, fill it out and mail it back to the address on the form.

Two other factors that can cause mistakes are if you changed your name following a marriage or divorce, or if your date of birth in SSA records isnt the same as it appears in IRS files. Double check your SSA statement for these possible mishaps and make sure your earnings data matches the amounts on your W-2 forms.

And whenever you change your name, or if you notice a birth date error call the SSA (800-772-1213) and ask for Form SS-5, Application for a Social Security Card, and submit it with the correct information. The form can also be downloaded at www.ssa.gov/online/ss-5.html.

Calculation Errors

Even when all the earnings data is correct, the SSA occasionally errs in calculating benefits.

You can double check their calculations by using SSAs formula found at www.socialsecurity.gov, however the math is rather complex.

If you think your benefits have been miscalculated, point it out to your local SSA office and ask them to recalculate. If they do find an error, make sure you receive a confirming letter and that the correction appears on next years statement. If youre already receiving benefits, the SSA will reimburse you for the amount of the error.

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Jim Miller is a contributor to the NBC Today show and author of The Savvy Senior books.