No COLA for Social Security in 2011: Here’s Why

by Darwin on October 11, 2010

No COLA for Social Security in 2011 is the headline, then there’s the back story.  First off, COLA is the “cost of living adjustment” that recipients generally expect from their Social Security benefits.  Most years, there’s an increase, since inflation tends to increase enough each year to justify said increase.  However, when inflation, as measured by a static formula, doesn’t rise enough to trigger an increase, there’s No Soup For You!  No increase.  On one hand, it seems rather cold and callous – throwing granny out on the street begging since she can’t pay those heating bills.  On the other hand, there’s gotta be some sort of rigid algorithm set up so that each year, we don’t get politicians pandering for votes looking to give away the house to appease certain voting classes, leaving future generations to foot the bill (kind of like what’s going on now with dumb stimulus programs, bailoutsunlimited unemployment insurance, useless tax credits and Sweetheart Health Care Deals).

How COLA Increases Work: The  Facts

  • There’s been NO COLA increase only twice since 1975.  This year and last year.
  • 59 million people receive some form of Social Security payouts routinely
  • $1,072/month is the average payout
  • Payment increases are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers
  • If there’s a year over year increase, recipients will realize increased payments starting in Jan of the next year. If inflation is negative, the payments stay the same.

Seniors Got One Over On Us?

So, sounds like seniors are getting screwed, right?  Well, sort of, but they also got some “bonus” deals in prior years as well.  For one, they got a one-time bonus payment of $250 2009 as part of the Obama’s economic recovery package.  It’s not much money, but it sure adds up when it’s millions of recipients.  And they weren’t supposed to receive an increase at all.  Now, go back a year and here’s the real scorcher: Seniors got a huge increase, way over inflation because of a one-time anomaly.  See, gas prices spiked to $4/gallon during the summer of 2008 which resulted in a 5.8% increase for 2009.  That was the largest increase EVER.  Then gas prices tanked and seniors got to keep the huge increase.  Now, this same 5.8% is still baked into today’s numbers since there’s no “negative” COLA.  They will never see payments decline, they only increase.

Actually Seniors are Kinda Screwed

So, when looking at it that way, Social Security recipients are actually making out pretty well.  But then there’s that pesky problem – how the calculations are performed for the index.  Even though gas prices may be way off their 2008 highs, no joker’s going to tell you the real things seniors spend money on are decreasing.  Medical expenses are especially harsh and going up.  Prescription drugs take a huge toll on recipients and medical expenses increase substantially in old age.  Local taxes and rents are increasing and will continue to do so in the face of municipal collapses.  Food isn’t getting cheaper.  The US dollar is weakening leaving seniors with less buying power for imported products.  And unless we’re looking at a true deflationary environment, chances are, we’ll see inflation pop up some time in 2011 and they won’t be up for a new increase until 2012.

Do People Really Need Social Security?

Apparently, yes.  About 1/3 of the recipients actually rely on Social Security for 90% of their income.  So, any flat year for them while their real costs are increasing is going to put them in a bind.  Now how or why so many people are so dependent on what’s really supposed to be a social safety net for small numbers of Americans is beyond me.  And let’s face it, this level of payment won’t be available to 30-somethings and younger (while increasing the retirement age to 70).  But the facts are the facts.  Millions of Americans rely heavily on these payments, so it’s going to be a rough year for them.

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