The Tax Attic – June 18, 2009

Jerry Coon, Enrolled Agent

Jerry Coon, Enrolled Agent

Social Security
to go bankrupt

It has been an eventful and good last few months for the Coon household. Stephanie, our oldest daughter, has been a student at Rush Medical University in Chicago for the last four years. At the end of April, she completed her studies at Rush. Prior to that time, she found out that she would be serving her three years of residency in Grand Rapids at Spectrum. To say that her mother and I were excited to have Stephanie coming home was an understatement. Since Stephanie also earned her undergraduate degree in Chicago at North Park University, she has really been in Chicago for the past eight years. It will be nice to have her home for the next three years.

Having a daughter become a doctor is an event all by itself, but there is more to the story.

It has been a whirlwind few months. Stephanie has been engaged to Devon Cunningham, a transplanted Californian, since last year. The Coons gained a son-in-law on the Saturday of Memorial Day weekend. Congratulations to Stephanie and Devon.

On Wednesday of the week of the wedding, Devon and Stephanie bought a house near Spectrum. Since they will be employed for the next three or four years, many incoming medical residents choose to buy houses instead of renting. Once Stephanie and Devon found out she was coming to Spectrum, the plan was to move all of their belongings directly from Chicago up to a house in Grand Rapids.

As so often happens, however, things don’t work out quite like the plan. Delay after delay resulted in the house-closing not occurring until the week of the wedding. That meant they and all of their belongings lived at our house until after the wedding. It’s just Deb and me in our home, anyway, so there is plenty of room. But I am sure Stephanie and Devon would have preferred to not have to move everything twice.

Then, on June 13, Stephanie and 120 of her classmates received their degrees and became doctors of medicine. All of them will be completing their residencies throughout the U.S. and specializing in many different areas. Stephanie is going to specialize in emergency room medicine. This was not only a great day for the Coons, but also for Rockford Public Schools. Another graduate becoming a doctor says only good things about our public school system. The residents at Spectrum don’t work directly for Spectrum. Since they work for a third party in a program administered by Michigan State University (MSU), Dr. Shibler, an MSU alumnus, has an extra reason to be proud of Stephanie’s accomplishment. She will really be working for MSU. Congratulations, Stephanie, on receiving your degree and becoming a doctor. We are very proud of you.

   Sooner or later, it is almost inevitable that our Social Security system will go bankrupt. One of the reasons is a program called Cost of Living Adjustment (COLA). This is an increase of benefits based on the annual cost-of-living index. Congress instituted the COLA increases 35 years ago, and there has not been one year when there was not a COLA increase. In effect, there has always been a rate of inflation, so there was always a COLA. That 35-year run will end in 2010. According to the Congressional Budget Office (CBO), there will be no COLA increase in 2010.

In an example in this month’s AARP bulletin, the average monthly benefit for retirees in 2000 was $844.58. Taking into account COLAs during the years of 2000-2009, ranging from 1.4% up to 5.5%, the 2009 average monthly benefit for retirees has increased up to $1,157.49. In just ten years, the average benefit has increased by $312.91. That’s a 37.05% increase in benefits.

When the actuaries set up the Social Security entitlement program for President Franklin Roosevelt back in 1935, they did not include a COLA program. I believe they left out a COLA increase on purpose. The system just can’t withstand a 37.05% increase every 10 years.

By the same token, taxpayers whose only income is from Social Security need this increased benefit in order to keep up with inflation.

“Congress never anticipated a year when there would not be a Social Security COLA,” says John Rother, AARP’s director of policy.

Needless to say, apparently they weren’t anticipating Social Security going bankrupt either. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive in Rockford.
His e-mail address is

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