The Great Recession may technically be over. But there has been no recovery, let alone a Great Recovery. Businesses still do not want to invest or hire. Consumers don't want to spend and are still slowly digging their way out of the mountain of mortgage and personal debt that helped fuel the downturn. Beyond these broader concerns, here are five big money issues that will affect seniors in 2011:
Social Security COLA.
The Social Security Administration will soon announce its cost-of-living adjustment for 2011. Unless some cataclysmic pricing event happened last month, the 2011 COLA is expected to be zero for the second straight year. This means that there will be no increases in Social Security benefits in 2011. It also means that basic premiums for Medicare will be frozen as well. However, surveys confirm what seniors already feel in their wallets. A zero COLA may mean that overall consumer prices haven't increased, but medical prices have continued to rise. What's more, older consumers naturally need more medical care as they age. They are consuming relatively more of a resource—medical care—that has been rising in price by 6 to 10 percent a year, depending on the category of care that's involved. A second straight year of no cost-of-living increases for Social Security recipients will be coupled with continuation of near-zero interest rates on fixed-income investments. We don't need to wait for November election returns to know that many seniors will have a very, very tough financial time in 2011.
Medicare Policies. The open enrollment period for next year's Medicare policies begins on November 15. Past regulatory changes plus health reform impacts make this a year when seniors and their families should carefully review the Medicare marketplace. Expect substantial changes in some states and counties in the availability, terms, and prices for part D subscription plans and Medicare Advantage policies. Some insurers are leaving certain markets, and many others are changing their policies. A Kaiser Family Foundation study says the average rate for Medicare Advantage plans will rise 10 percent and urges consumers to shop for better deals. There also have been changes in the types of coverage available in Medicare Supplement policies, also known as Medigap coverage. Make sure your doctors plan to continue participating in Medicare. Next year's Medicare details will begin showing up soon on the Medicare site.
Tax Rates. The Bush tax cuts expire at the end of this year. Unless Congress takes action, income and capital gains tax rates will rise across the board in 2011. President Obama campaigned on keeping lower rates for most taxpayers but restoring rates of the wealthiest taxpayers to their pre-Bush levels. Republicans argue against any higher taxes. The president's deficit reduction commission is set to issue its report after the elections and will weigh in on this issue as well. If there was a spirit of compromise in Washington, it would produce a temporary ban on higher taxes for a couple of years until the economy had recovered.
Estate taxes. The Bush tax cuts were not on the table last year, and Congress still could not bring itself to deal with the sunset provisions of another Bush-era law. This statute steadily reduced estate taxes during the past decade and ended them altogether this year. However, next year, the older rules for estate taxes are set to come back, including a 55 percent tax rate and an exclusion from taxes of only $1 million. Most experts had expected Congress to agree on a compromise that would have set the rate at 45 percent and included a sizable exclusion of $3.5 million per spouse. Truly wealthy families would rather pay a few points more on income taxes than face punishing estate tax rates. Maybe there's a basis there for a political deal.
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Interest rates. The Federal Reserve has held interest rates near zero for more than two years. Whatever the merits of this policy in terms of helping financial institutions and the economy recover, it has been devastating for seniors living on fixed incomes. Bank balance sheets have recovered greatly, and many financial institutions are awash in liquidity. Private corporations also are sitting on record amounts of cash. Seniors would be well served if the central bank permitted interest rates to begin rising to more normal marketplace levels. Charles Schwab, founder of the firm that bears his name, has been beating this drum. In a recent Wall Street Journal piece, he argues, "the Fed's super-loose policy has driven down the security and spending power of savers, particularly those in retirement who played by the rules during their working years and now depend on the earnings from their savings for a decent quality of life. As a result, savers and investors are being forced to take more risk with their money as they hunt for higher yields. The extreme monetary policy is also having no positive impact on the availability of consumer or business credit, job growth or consumer and business spending."