BACK • 
When Bad News is Good News
The Social Security Administration recently announced that the nation's more than 50 million Social Security recipients will get a 2.6 percent increase in their monthly checks next year. That amounts to roughly a $22 a month increase for the average retiree. To recipients, that may on the surface be something of a disappointment since the 2.6 percent increase is less than this year's 3.5 percent increase. In fact this years increase was the highest in the last nine years.
So, at first look, getting a smaller increase would seem to be bad news for Social Security recipients. But, as is so often the case, first looks can be deceiving. The reason that the Social Security increase for next year will be smaller is because it is based on the rate of inflation in our country over the last 12 months. I therefore would content that the smaller increase actually represents good news not only for recipients themselves but also for all of us.
For recipients living largely on fixed incomes, lower inflation is the best news they could get. Inflation as we all learned especially in the late 1970's and early 1980's is everyone's enemy, but particularly for those who by virtue of living on fixed incomes cannot adjust their earnings to keep pace with inflation. With the exception of this year's 3.5 percent increase, yearly adjustments have been under 3 percent since 1993. In contrast, the double-digit inflation we suffered through in the late 1970's drove the cost of living increases sharply higher, peaking in 1980 with an increase of a whopping 14.3 percent!
So, in times of higher inflation, retirees really don't benefit from the bigger increases, and in fact don't even keep pace because in those times prices a sharply higher across the board. As for those of us who are paying into the system, of course higher inflation requires us to pay in more and more, with the knowledge that the system itself is falling further and further behind. In other words, absolutely no one wins.
By the way, for those of us working Americans, the maximum annual earnings subject to Social Security taxes next year will go up from the current $80,400 to $84,900. The new tax rates apply to all of America's 154 million workers who pay Social Security taxes.
(Tom Butenhoff is a First Vice President with J. E. Liss and Company, Inc.
in Milwaukee. The views are his, and not necessarily those of Liss
Financial Services or the Job Connection/Hiring
Network.)