The Flooring Twenties?

Aug 19, 2022 | Retirement | 1 comment

Retirement accounts and Social Security are already taking a beating as the American economy emerges from the ruins of COVID-19.

Wednesday it was revealed that Fidelity’s 401(k) and IRA accounts were decimated in 2022 Q2. The average balance of its 401(k) accounts fell from a record high of $130,700 at the end of 2021 to $103,800, and IRA’s fell from $135,700 in 2021 Q3 to $110,800. In addition, the number of accounts holding at least $1 million in Fidelity 401(k) sinks from 442,000 in 2021 to 294,000 by June 30, with a smaller fall in the number of million dollars IRA accounts.

For those already living in retirement, the picture gets bleaker for a different reason. Thursday the Motley Fool reported that Social Security beneficiaries could be receiving a “raise” of up to 11.4% in their monthly checks, but it would come in the form of cost of living adjustments (COLA), meaning that any added income their way would be eaten up by rising prices. Historically COLA has increased during years of rising inflation, such as 1990 (5.4%), 2008 (5.8%), and 1980 (14.3%). While this arrangement does not actually boost retirees’ purchasing power but hopefully just manages to keep them from falling off the inflation treadmill of rising costs, many financial outlets laud the COLA increase, with Forbes calling it “great news”.

One built-in flaw of the COLA adjustments is that it acts to compensate for the current year’s inflation during the next year, by which point the inflation numbers may have already surpassed the figure used to determine the increased amount. This is the economic equivalent of a soccer defender trying to defend against an advancing opponent by charging at where the ball is rather than trying to anticipate where the opponent might kick it.

The COLA increases are not likely to ease Social Security’s pending insolvency issues which result from the growth in the number of beneficiaries steadily increasing as more Baby Boomers age out of the workforce while too few new workers replace them. In 2021 the New York Times reported that Social Security was projected to be insolvent by the year 2033, one year earlier than previously expected. Now with even more money being emptied out of the jar come 2023 will we see that predicted date move even closer?

Article contributed by Razor Ray McCoy

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1 Comment

  1. Peggy H.

    Mike, you are doing a wonderful job. You dig up and report on new developments before almost anyone else – Thank you!

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