By JUDD MATSUNAGA, Esq.
Practically all retirees who rely on Social Security benefits for income have all done it. They know exactly how much they have in savings, have calculated how much their monthly expenses are, and say, “I have enough savings to last another 7-10 years.” However, now with inflation driving the costs of everything up, your savings might only last “another 5 years.”
The problem is these same retirees plan to live another 10-15 years. It’s no wonder why so many seniors worry all the time, others are all stressed out. Knowing that seniors are struggling to make ends meet, the Social Security Administration threw out a lifeline, announcing its 2023 cost-of-living adjustment, or COLA, will be 8.7%, the highest since 1981. (Source: www.cbsnews.com, Oct. 13, 2022)
The average monthly benefit will rise by more than $140 a month, with the typical payment jumping from $1,681 to $1,827. Yet some seniors are worried the 2023 increase may not cover spiraling inflation. Why? Because COLA gives less weight on medical costs, which are typically higher for seniors, and greater weight to gasoline and transportation costs more common for workers and not retirees.
But that’s not the worst of it. Have you heard the phrase “back-stabber”? It’s when someone (e.g., the government) pretends or portrays themselves as your friend, or that they have your interests, your welfare at heart but instead they are involved in treacherous actions/words against you. The government is “smiling in your face,” i.e., 8.7% COLA, while it is stabbing you in the back with a hidden tax on your savings.
You might say, “What? A hidden tax on my savings???” According to the economists, inflation is actually a hidden tax on your savings. Here’s the best way I know of to explain it:
Let’s say you have a group of people, and these people buy things. Let’s also say they earn $50,000/year and the price of a Big Mac Meal from McDonald’s, shoes from Target, and a tank of gas are $5, $30, and $50. And in buying these things, they give these businesses money. In return, they receive goods and services from these businesses, i.e., a Big Mac Meal, shoes, and a tank of gas. That’s Scenario 1.
Now, in Scenario 2, the government starts to print enough money to double the money supply. So now, you’re earning twice as much as you were before, i.e., $100,000/year. But, with the same amount of goods and services, all that would happen would be that the prices of these good and services would double. So, a Big Mac Meal goes from a price of $5 to a price of $10, the tank of gas goes from a price of $50 to a price of $100.
So if I were to ask if you are better off in Scenario 1 or Scenario 2, the answer is you’re the same in both. It doesn’t matter to you whether you’re earning $50,000/yr. and a tank of gas costs $50, or whether you’re earning $100,000/year and a tank of gas costs $100 — it’s the same amount of gas.
However, there should be a significant difference in the two scenarios, and the difference shows up when you look at your savings. Let’s suppose in Scenario 1, you had $400,000 in savings, you’re earning $50,000/year and a Big Mac Meal costs $5. Along comes the government, it prints enough money so all the prices double. That means that the Big Mac Meal costs twice as much, the shoes cost twice as much, and you’re earning twice as much, but your savings is the same. It’s the same $400,000 sitting in your savings, but only buys half (50%) of what it used to.
This is what happens when the government comes along and prints lots of money. In effect, what it’s doing is draining away the purchasing power of your savings, i.e., inflation is a tax on your savings. When the government prints money and thereby creates inflation, we get the same exact effect as if the government had imposed a tax on people’s savings. So, economists say it’s called an “inflation tax.”
Sound familiar? Beginning under then-President Donald Trump and continuing through President Joe Biden’s administration, Congress has approved some $4.5 trillion in COVID relief funding, according to CNBC (Dec. 9, 2021). One trillion is 1,000 billion or a million
million – it’s a huge amount of money. A trillion is a 1 followed by 12 zeros, like this: 1,000,000,000,000.
Government benefits from inflation by paying off debt with cheaper dollars each year. Because inflation raises wages as well as prices (but wages almost always rise more slowly than prices), tax revenues increase. This gives more income to the government, which allows it to increase its debt and debt payments.
And just like our Scenario 2, the cost of food is going up. According to The Wall Street Journal (Dec. 27, 2021) food prices are estimated to rise 5% in the first half of 2022, while other sources point to a 7% increase by the end of the year. This number might be even higher in reality if we consider that many products are also shrinking in size, which means you’re getting less for more.
Gas prices are also at record highs. Experts fear the conflict between Russia and Ukraine could disrupt oil supplies in the region, which would lead to a bump in gas prices. Russia is the second-largest oil producer in the world, behind the U.S. Experts project much of the U.S. could see gas prices go up as high as $4 by early spring, and markets like California and Hawaii – where gas is already expensive – could top $5. (Source: USA Today, Feb. 23, 2022)
Not surprisingly, inflation has hit a new 40-year high in January. Inflation surged 7.5% annually in January, surpassing the previous 40-year high set in December and marking the highest annual inflation rate since February 1982, when it was 7.6%. Inflation is rising at the fastest pace in decades, which means consumers are paying more for rent, utilities, and groceries than ever before.
Financial institutions such as banks love inflation because the new money created to finance government debt goes to them as loans from the Fed. Because big banks are flush with cash and do not need to raise rates quickly to attract more deposits, the average rate paid on basic savings accounts insured by the Federal Deposit Insurance Corp. is just 0.06%, according to Bankrate.
They, in turn, lend this money to consumers at a much higher rate of interest. Mortgage rates are going up approaching 6%, and auto loans approaching 8%. Obscene profits are possible if one borrows at, say, 1% interest or less, and then turns around and lends that new money to a consumer who must pay 6%-8% interest.
You might conclude, “Sounds like the system is rigged.” You’re right — the system is rigged — AGAINST YOU. But here’s some good news — two can “play at the same game.” You can use the “system” and tilt the odds in your favor. It’s quite possible to play the game and get some of that free money the government is printing and giving away. But how?
For most Rafu readers whose fixed Social Security income is “average,” i.e., $1,680-$1,827 per month, you can get $2,000-$4,000 per month additional income from a county program called In-Home-Supportive-Services (IHSS). But you’ve got to play the “game.” If you proudly stick out your chest and say, “I don’t need any help,” you won’t get any money.
But if you “monku, monku, monku,” IHSS will send you a check every month and you can pick your own care provider. For example, if you can’t drive, you can’t cook, you can’t clean, you can’t see, you can’t walk, you can’t bathe, etc. The more categories you need help with, the more money you will get. That means you can pay your children for doing all those things they are doing for you now unpaid.
“But Judd, what if I’m making double or triple the average Social Security income of $1,800 per month. Can I still get IHSS?” Possibly if you’re married and your spouse is making under $2,000 per month -— but you might have to get divorced or legally separated, i.e., “play the game.”. If you’re single and making more than $2,500 per month, probably not going to get anything from IHSS.
The whole key to getting money from IHSS is first qualifying for Medi-Cal. But that just got a whole lot easier. Starting July 1 of this year, you no longer have to be at poverty level to qualify for Medi-Cal. The new Medi-Cal asset test allows a single applicant to have $130,000 plus exempt assets. An additional $65,000 for the spouse. That’s $195,000 for a married couple.
If you have more than $130,000 as a single person, or more than $195,000 as a married couple, there are legal ways to “spend down” those assets, or transfer excess non-exempt assets to a trusted child without triggering a three-year waiting period. But be careful — if you want to “play the game” you have to know the rules. It is highly advisable to consult with a Medi-Cal planning attorney before you start moving any money.
In conclusion, if you’re “feeling the pinch” because of the skyrocketing prices for just about everything, swallow your pride and look into getting some government benefits before these programs run out of money.
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Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.