If cities are your cup of tea, then here is some good news. The 2016 Worldwide Cost of Living Report compares the prices of 160 products and services – from food and drink to domestic care and private schools – in cities around the world. It found the cost-of-living in many cities fell during 2015 thanks to lower commodity prices, weakening currencies, and geopolitical unrest.
Be warned: a lower cost-of-living doesn’t mean a city offers good value. Take Zurich, for instance. Remember the uproar when the Swiss unpegged their currency early in 2015? The Swiss franc realized double-digit gains, the Swiss stock market swooned, and the Swiss people went shopping in neighboring countries. Well, the cost of living in Zurich fell from September 2014 to September 2015, but the decline wasn’t proportionate to declines elsewhere in Europe, and Zurich currently reigns as Europe’s most expensive city.
In September 2015, the most and least expensive cities in the world were:
Republic of Singapore
Hong Kong, China
Cities in the United States didn’t fare well, either. A strong U.S. dollar helped push all 16 of the U.S. cities that were in the survey up at least 15 places. New York and Los Angeles both rank among the 10 most expensive cities in the world.
Too many Americans, particularly in the younger generation, believe Social Security benefits will be nonexistent by the time they reach retirement age. While it’s true that the money in the Social Security trust funds is being depleted, the chances that benefits will be eliminated altogether are slim to none. Here’s what Americans need to know about the current state of Social Security, what would need to happen to keep benefits as they currently stand, and what the worst-case scenario looks like.
The reserves are running out
Social Security taxes are deposited into trust funds, which theoretically earn enough interest to pay out benefits — and right now, they do.
However, the Social Security and Medicare Trustees’ 2014 report projects that reserves will build until 2019, after which the benefits being paid out will exceed the amount of money flowing in. This deficit will drain the trust funds, and all reserves are forecast to run out by 2033 unless Congress makes changes to the program.
What can be done to fix this?
Several actions could be taken to maintain Social Security benefits past 2033. And Congress has some time to decide, as reserves will build up for another four years.
1. Increase Social Security taxes: Currently, employees pay Social Security taxes at a 6.2% rate, and employers contribute a matching amount. One potential fix would be to gradually increase the rate to 7.2% over 20 years. It is estimated that this would make up for 52% of the projected shortfall. This solution is supported by 83% of Americans, according to a survey by the National Academy of Social Insurance and Greenwald and Associates.
2. Eliminate (or increase) the wage cap: As of the 2015 tax year, only the first $118,500 of Americans’ wages are subject to Social Security taxes. Increasing the wage cap to about $230,000 — which would represent 90% of all earned wages — would reduce the shortfall by 29%. Eliminating the cap altogether would take care of 74% of the shortfall, although this idea is less popular than simply increasing the cap.
3. Raise the normal retirement age: Gradually raising Social Security’s full retirement age to 68, or even 70, would go a long way toward fixing the problem. However, this is a rather unpopular option: 65% of the population opposes an increase to 68, and even more Americans oppose an even higher retirement age.
4. Lower benefits: Across-the-board cuts are extremely unpopular, but cutting benefits for higher earners is a possibility. Because the system is weighted toward lower-income earners already, it could be possible to reduce benefits on a sliding scale to middle- and high-income workers. There are an infinite number of ways to do this, so it’s tough to say how much of the deficit this could offset.
5. Adjust how cost-of-living increases are calculated: Currently, the Consumer Price Index, or CPI, is used to determine annual cost-of-living increases in Social Security benefits. However, switching to an index called “chained CPI,” which economists say provides a more accurate picture of inflation, would reduce annual increases by about 0.3%. This politically popular idea would eliminate 25% of the shortfall.
6. Base the formula on more working years: Finally, because Social Security is calculated based on the 35 highest-earning years of a worker’s career, that number could be increased to, say, 38 years in order to reduce the calculated average. This could take care of 13% of the shortfall, but it would effectively represent an across-the-board benefit cut and would therefore be unlikely to gain traction in Congress.
The most likely outcome
I’m almost certain Congress will do something to make Social Security solvent, at least on a temporary basis. In the past, lawmakers have acted when necessary in order to keep the program above water, and there’s no reason to believe things will be any different this time. After all, the last significant Social Security changes (made in 1983) are the reason the trust funds are expected to last until 2033 in the first place.
However, some options are highly unlikely. For example, cutting benefits across the board and raising the full retirement age are both particularly unpopular choices among Americans, so they’re unlikely to get serious political support.
On the other hand, Americans of all income levels and political affiliations support gradually increasing taxes, raising or eliminating the wage cap, and changing the cost-of-living calculation method. So my best guess is that we’ll see one of those, or some combination of them.
What if Congress does nothing?
Of course, there’s always a chance that Congress will do nothing (hey, it’s happened before), but that doesn’t mean benefits would disappear completely, despite the fact that 41% of Americans mistakenly believe they would. It simply means that because the trust funds will be depleted by 2033, the only funding source for benefits after that point would be money flowing in from taxes.
If this unlikely scenario were to play out, the Social Security and Medicare Trustees 2014 report found that benefits could be sustained at 77% of the current level until 2088, at which point they would only drop to 72%.
Again, I find this scenario unlikely, but it’s good to know Social Security benefits will be largely sustained no matter what.
Hope for the best, but plan for the worst
The point here is to recognize the current state of Social Security and what the future could look like.
The life of an expat can often seem glamorous with the appeal of living abroad in a different culture, but it has its downsides, too. Mainly, how much it can cost to live.
Consulting firm Mercer released the initial findings from its 21st annual cost-of-living survey, which compares data from 207 cities over five continents and is based on answers and exchange rates from March. The survey measures costs of more than 200 items in such categories as housing, food, clothing, household goods and entertainment.
Topping this year’s list of the priciest places to live are the following 10 Asian, European, and African cities, determined using New York City as the base city for comparison.
“Japanese cities have continued to drop in the ranking this year as a result of the Japanese yen weakening against the US dollar,” said Nathalie Constantin-Metral, a principal at Mercer who worked on compiling the survey ranking. “However, Chinese cities jumped in the ranking due to the strengthening of the Chinese yuan along with the high costs of expatriate consumer goods.”
Note: For each of the following cities, the apartment and house rental costs given are per month, and they are specified to be residences “of international standards, in an appropriate neighborhood.” Other prices given refer to purchases at medium-priced establishments.