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.

{ 11 comments… read them below or add one }

Dividend Monk October 11, 2010 at 11:09 pm

All the more reason to start building wealth from a young age.

Some people in this group are dependent due to being dealt some pretty harsh cards in life, but most are in this predicament because they simply played their cards poorly.

People should start as early as possible to seek attractive risk-adjusted returns from a variety of sources so that by the time they retire, their passive income greatly exceeds their expenses. This way they don’t have to rely on government support and their finances can withstand even a significant decrease in value without reducing the standard of living.

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Forest October 12, 2010 at 7:50 am

I took a look at this from my shoot from the hip perspective and kind of felt the opposite about living costs…. However I did not think about medical a whole lot! That is the killer!

I do however think that general living is cheaper. Food is cheaper than ever in Supermarkets from competition (as far as I can tell) and rents are lowering as property owners change to renting to try and claw back income on properties they can’t sell.

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Darwin October 12, 2010 at 5:21 pm

Food’s probably gonna spike with grains and corn going through the roof from poor yields and fires in Russia. Just won’t show up in CPI til too late.

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Khaleef @ KNS Financial October 12, 2010 at 1:37 pm

I can’t believe that so many people depend on SS for the majority of their income! Maybe they should tie the benefits to a basket of goods that better reflects the expenditures of seniors.

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Darwin October 12, 2010 at 5:22 pm

Well, that’s what they attempt to do by using that particular index, but evidently people don’t feel it’s representative.

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ParatrooperJJ October 12, 2010 at 5:14 pm

While the SS gross payments didn’t decline, the Medicare premiums did increase so the net SS payment hitting their accounts is less.

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Darwin October 12, 2010 at 5:22 pm

Good point, just one of multiple costs increasing y/y

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Investor Junkie October 14, 2010 at 12:40 am

I think seniors are screwed over fixed income rates… has anyone looked at 5 year CD rates lately?? With the addition of SS I’m sure makes it hurt for many.

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greg October 17, 2010 at 6:19 pm

So in addition to no COLA for seniors, the government’s war
on savers hits them hard….

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Rod Jones February 3, 2011 at 11:48 am

This is the biggest pile of lies and greedy, self-serving nonsense I’ve ever seen. Seniors are making out pretty well? That statement alone demonstrates how out of touch you are with what is going on in this country. Frankly, someone ought to slap the living shit out of you for being so crass, selfish, and unconcerned towards the very real predicament a large number of our seniors find themselves in.

Your attitude is unAmerican and should be criminal. You’re obviously a spoiled, rich, pompous pile of manure with no concern for anyone except yourself. My friends, the purveyor of this filth is the true definition of what it is to be a worthless scumbag.

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Darwin's Money February 3, 2011 at 1:47 pm

You clearly have a comprehension problem, you’re highly immature and you are a brat.

Go back and read the paragraph that so offended you again. Numerically, my argument is sound. There was a massive increase in a particular year due to a momentary spike in oil prices which subsided quickly.

Then, read the next section entitled “Actually Seniors are Kinda Screwed”. Does that not align with your premise?

You’ve gotta love the anonymity the internet provides. You’d never say this to my face and your argument is childish, baseless and immature. You’re an embarrassment to yourself; quit while you’re behind.

My attitude is “Criminal”? Seriously? Please get a grip…ROD.

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