Social Security benefits will increase in January 2009 for 50 million people. The increase will be 5.8 percent and will be the largest increase since 1982 when Social Security benefits rose 7.4 percent. The 2009 increase will be more than double the increase retirees received in 2008, which was 2.3 percent.
At first glance, that sounds exciting, until you realize that what that equates to for the average retiree is a paltry $63.00 per month. Annual benefit changes are based on the amount the Consumer Price Index (PCI) increases from July to September of one year to the next. Unfortunately, the problem with using the CPI is that most consumers don’t believe that the CPI accurately reflects the prices they pay for crucial necessities like energy, food, or healthcare. This disbelief is particularly strong among those who live on a fixed income.
Some argue that if the Producer Price Index (PPI) were used to measure increases in Social Security benefits, it would be a better reflection of the “real world” for retirees. The PPI measures wholesale inflation. (Wholesale inflation tends to lead retail inflation.) The Producer Price Index (PPI) in June 2008 set a 27-year record with a 9.2 percent increase in inflation over a twelve-month period. The last time inflation was this high was the same year Treasury yields topped 15% and 30-year mortgage rates topped 16%.
Retiree mistreated on several fronts
An extra $63.00 per month seems woefully inadequate for millions of retirees who have been battered on multiple fronts this year. Not only have they seen huge increases in energy and food costs, but many have been robbed by shaky stock market declines as well as plummeting home values.
The Congressional Budget Office estimated that Americans’ retirement plans have lost as much as $2 trillion in the past 15 months, representing more than 20 percent of their value, due to the turmoil on Wall Street. Real estate prices have fallen nationally by 20.29 percent. In some of the previously “hot” markets, such as California, Nevada, Arizona, and Florida, the declines have been even more severe.
More Turn to Reverse Mortgages for Help
Retirees concerned about their depleted savings and stock assets are increasingly turning to the idea of using a reverse mortgage to stabilize their cash flow and supplement retirement income. Fortunately, the increased demand for reverse mortgage loans coincides with the new regulations for FHA-insured HECM reverse mortgages. The HECM reverse mortgage loan now has a higher national loan limit of $417,000. This is up from previous loan limits that ranged from $200,160 to a maximum of $362,790, depending on the county in which the property was located. The single national loan limit not only simplifies the product, but allows approximately 30 percent more seniors to qualify and others to be eligible to get even more money than they would have been with the lower loan limits.
If you are one of the many retirees who feels a personal disconnect between what the government says is the rate of inflation and your “real world” experiences every time you go to the grocery store, gas station, or pay your utility or medical bills, then don’t feel alone. The indices that have been chosen are by design and will unfortunately never reflect the “real world”. Even with the conservative ratio to which the government links increased benefits, the system is still on track for insolvency by the end of 2011.
It is essential that we all take charge of our own destiny in retirement. If you thought you planned well and are now realizing you might be short on money and long on time, you may want to consider tapping into home equity even though you thought you would never have to touch it and leave it in your estate for your heirs.
Home equity doesn’t have to be a sacred cow, never to be tapped. Most adult children would rather see their parents live comfortably in retirement than sacrifice lifestyle to leave them a home they don’t want or need.