Retirement Matters

June 2021

Unexpected Revenue — Michigan is flush with unanticipated State revenues as the federal relief funds boost consumer spending, which increase sales tax revenues on goods purchased. More federal aid and State revenues provide significant resources to solve existing State problems in a way not seen in recent times. At the May 2021 Consensus Revenue Estimating Conference (CREC), Michigan state revenues were revised upward from a projected budget deficit of more than $3 billion, based on January 2021 estimates, to a combined surplus of $3.5 billion for fiscal years (FYs) 2021 and 2022.

General Fund Bolstered — This financial infusion is a welcomed break from the decades of State revenue short falls that hindered retiree programs. General Fund revenue is a primary fund source used to finance senior programs and is used as federal match. The CREC increased the General Fund revenue for FY 2021 by $1.04 billion, or 4.7 percent. FY 2022 General Fund revenue was increased by $776 million, up 3.5 percent. These funds could be used to improve long-term care programs whose funding has been stalled for years. For example, the lives of many retirees could be enhanced by caring for them through home and community-based services (HCBS) instead of a nursing home. In addition, the pandemic highlighted the essential need for better infection control practices in nursing homes. Demand for senior services will continue to rise as 10,000 baby boomers turn 65 every day, leading to a projected doubling of seniors by 2050. Despite this increasing demand, program services are at risk as they may be reduced when future State revenues are not adequate to meet balanced budget requirements.

Federal Aid Surges — This unexpected surge in revenue would not have occurred without a massive infusion of federal aid, making the grim economic effects of the pandemic more short-lived. Revenue growth was fueled by the consumer spending of coronavirus relief checks. In addition to this revenue growth discussed above, billions in federal aid will be provided by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and the America Rescue Plan Act (ARPA). The ARPA funding is “transformational” as it’s intended to finance changes in the lives of our residents so that we’re able to emerge stronger from the pandemic. This “system change” funding hasn’t been available in recent times due to austere budgets. It provides an opportunity to use resources toward targeted one-time investments that improve programs. Most of the ARPA funding can’t be used for on-going costs and must be spent by 2024.

Social Security Shortfall — Several proposals are circulating on ways to reduce Social Security (SS) benefits. The SS trust fund is projected to become less solvent, but not become insolvent, as soon as 2035. Several options have been developed to turn the tide. So, there isn’t an immediate crisis to justify reductions. There is long term public support for continuing SS and opposition to benefit cuts. The SS program hasn’t been overhauled since 1983 so it’s time to make changes to put it on a sounder financial footing. However, that doesn’t mean that benefits should be cut.

Eligibility Age — One proposal raises the age for collecting full SS benefits. Raising the age for eligibility is a benefit cut and means a reduction in benefits over a life-time. The age was already increased from 65 to 67 years old and it doesn’t need to be raised further. Some say this action is justified as people are living longer. However, it doesn’t mean that they can work longer. Their health is likely to deteriorate as they age or jobs may not be available for them. Many workers already experience age discrimination before they reach retirement age. Providing seniors with SS benefits at a reasonable age provides them the economic safety net they may need to retire.

Improve Services — The President’s FY 2022 budget recommends a $1.3 billion or 9.7 percent funding increase for the SS administration. Reductions over the last decade meant closing of field offices, placing callers on hold with long wait times, and delays in SS Disability Insurance hearings. This increase would improve customer services for seniors and their families. Also, this budget recommendation asks Congress to allow Medicare to negotiate prices for selected high-cost, life-saving drugs that many seniors can’t afford. The savings from lowering drug prices could be used to cover the much-needed dental, vision, and hearing coverage that is not currently included in traditional Medicare benefits.

Cost of Living — The cost-of-living adjustment (COLA) on SS benefits is projected to rise by 4.5 percent for 2022, the largest increase since the Great Recession of 2008 when a 5.8 percent increase was provided. This higher-than-normal rate reflects the rebound of consumer prices on gasoline and cars, for example, that were depressed during the pandemic. This higher than usual COLA doesn’t remedy the underlying inadequacy of COLA provided to seniors over many decades.

Health Care Costs — Why isn’t COLA enough? Currently, the Social Security Act ties the annual COLA to the increase in the consumer price index (CPI) for urban wage earners and clerical workers, CPI-W. In 2021, the COLA for SS only increased by 1.3 percent, the lowest rate increase since 2017. This monthly increase is only worth $20! It doesn’t go far towards paying for higher health care costs not covered by insurance or Medicare, let alone buying just one over-the-counter product. Medicare Trustees say that 25 percent of today’s check is spent on out-of-pocket medical costs. The CPI-W doesn’t accurately measure the inflation paid by retirees because it’s based on worker spending habits. Retiree purchases include a much higher portion of spending on health care and out-of-pocket health care costs, whose price has consistently risen higher than reflected in the CPI-W for workers. Seniors age 65 and over spend twice as much as those working on health care and those over age 75 spend nearly three times more than younger consumers. The President is recommending the CPI-E (Consumer Price Index for the Elderly) instead which properly weights the goods and services that seniors spend their money on.

Editor’s note: Joanne Bump currently serves as feature columnist for “Retirement Matters.” Joanne can be contacted by phone at (517) 896-2729 or by e-mail at

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