Posted on August 20, 2008

Current retirees slated to receive big Social Security benefits increase

Next year, current recipients of Social Security can expect the biggest annual increase in benefits in 25 years.

After decades of miniscule increases—last year’s was a paltry 2.3%—the Social Security Administration expects that next year’s benefits will be about 6% higher than this year’s. To be exact, if there’s no additional inflation, the increase will be 5.7%, but that’s an unlikely scenario given the soaring costs of food, oil, and other essentials.

How should future retirees view this development? It depends.

Without a doubt, recipients of Social Security can rightfully expect their benefits to keep pace with inflation—otherwise, they’re getting poorer. And while there’s no proof, rumors persist that the government manipulates the CPI to rein in so-called entitlements like Social Security. In any event, retirees will need the 6% increase just to hold their ground.

On the other hand, the “return on investment” of Social Security has been high for current retirees and is dropping. The well is running dry. If current retirees are too well taken care of, the cuts that future retirees will have to suffer will be all the worse. Where’s the fair break-even point? We’re still working on that. Stay tuned…

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