To underscore this point, let's look at how well Social Security benefits have kept up with actual cost of living expenses over the past decade. Since 1998, the average yearly increase in Social Security benefits (to the end of 2008) has been 3.0%. Compounded over 10 years, that amounts to a 35% increase in Social Security benefits. Now let's look at some consumer costs have changed over those 10 years and see how they compare with the Labor department's 35% in reported inflation.
A decade ago, in 1998, a gallon of gas cost about $1.40, less than half of what it was last year, at over $3 a gallon. Likewise, health insurance premiums rose more than 100% over the decade from about $5,900 to almost $13,000 in 2008. To the frustration of parents of college-age kids, college education costs continued to rise sharply during the 2000s from $14,508 for the average private four-year college in 1998 ($3,243 for public four-year college) to $25,143 for the average private four-year college in 2008 ($6,585 public four-year). Those are 73% and 103% increases, respectively. The largest expense for most individuals, the price of a home, has also risen sharply during the past decade. The average house price nearly doubled from 1998 to 2008, from about $113,000 to $215,000, even after recent declines in many real estate markets. And of course, most Americans are paying significantly more for utility costs, auto insurance, property tax rates, food, and most everyday services.
Inflation is correctly called the stealth tax. It's a hidden tax that most Americans pay little attention to, which is exactly how the government likes it. It's the result of overspending and excessive money-printing by the government. Basic economics says the more of something that exists the less valuable it becomes. So it is with money. With inflation, every year your dollars are worth less and it requires more of them for everyday expenses. Judging from recent spending intentions and money printing going on in Washington, the government has every intention of continuing their inflationary ways. Imagine if the government suddenly printed a quadrillion dollars. While the price of almost everything would go up, it would do so because each remaining piece of paper money would be nearly worthless. This is what is happening every day but at a slower pace (so far).
The government's back is against the wall. They are running out of money and realize it will become increasingly difficult to pay Social Security benefits (as well as Medicare and other so-called entitlements), particularly as increasing numbers of baby boomers demand more retirement and health services. At the same time, the government is guaranteeing more than ten trillion dollars in bad debts in the mortgage and financial industry. As these debts go bad, more money will be printed, furthering the inflationary fires. Our dollar will continue to weaken. The price of oil and gas will rise sharply, along with the majority of the things we buy.
Even more so than in decades past, in the past several years we have seen an increasing disparity between reported inflation and what individuals experience in their common everyday experience. Because of their fiscal demands and debt woes, this disparity may grow ever wider, with seniors find their real (after their true cost-of-living) Social Security checks getting smaller. While to this point, Social Security benefits have been primarily reduced by the stealth tax of inflation, fiscal realities will soon demand more overt changes such as increasing the age that retirees will be entitled to full Social Security benefits.
Over the past few decades, seniors have become increasingly reliant on Social Security benefits. The majority of Social Security recipients rely on Social Security for more than half of their income. A third of Social Security recipients rely on Social Security for more than 90% of their income. These realities will create challenges for tomorrow's retirees. Unfortunately, while real Social Security benefits decline, a greater percentage of workers will have no private pension. Even with a larger workforce, two-thirds of defined-benefit plans (traditional pensions)have closed over the past twenty-five years. And while some investors are saving for retirement, others aren't. A full third of workers say they have saved nothing for retirement. A similar percentage has saved minimal amounts that will contribute little to provide for a comfortable retirement.
The financial realities of over-spending, over-indebted governments will mean that today's pre-retirees cannot depend on the government to take care of them. Social Security will be modified outright to take full retirement benefits to 70, 72 or 75 or higher or benefits will be taken through the stealth effect of inflation. In the years ahead lifestyle changes will be made by pre-retirees as they are forced to save more and spend less. This will be the reality of living with the decline of the Social Security system and a government moving rapidly toward insolvency.