Inflation May Push Social Security Adjustment To 25-year High

[allan]

Inflation May Push Social Security Adjustment to 25-Year High

By Carole Fleck - August 13, 2008 - AARP Bulletin Today

Nearly 49 million older Americans can expect one of the largest Cost of Living Adjustments to Social Security retirement benefits in a quarter century, thanks to rising inflation.

Though the actual COLA is still undetermined, economists say recipients can expect a raise in 2009 that will greatly surpass—and could more than double—this year’s 2.3 percent increase.

Alicia Munnell, director of the Center for Retirement Research at Boston College, predicts the cost of living adjustment “could well exceed 5 percent.” An increase of 5.5 percent or more would be the largest since a 7.4 percent jump in 1982, surpassing a 5.4 percent increase in 1981.

The Social Security COLA is tied to the July-September quarter of the Consumer Price Index (CPI-W), which represents the cost of a basket of consumer goods and services, compared with the same quarter of the previous year. The Bureau of Labor Statistics says that the current 12-month change in the CPI-W, from July 2007 to July 2008, is now running at 5.6 percent.

The amount of the adjustment for 2009 is announced in October. Since 1975, retiree benefits have been adjusted annually to keep pace with inflation.

An estimated 49 million Americans collect Social Security benefits, including about 34 million retirees and their dependents, 6.5 million survivors, and 9 million people with disabilities and their dependents. Currently, the average monthly payment for retirees is $1,079.

Although inflation is at a 17-year high, Munnell says Social Security beneficiaries actually fare better than many others in today’s economic climate because retirement benefits have a built-in adjustment for inflation; 401(k) plans and many wage packages and pension plans do not.

“This notion that everyone gets a cost of living adjustment is no longer true,” Munnell says. ‘Older people, to the extent that they depend on their Social Security benefits, in some ways are more protected” against inflation.

But there is a lag. Because the Social Security COLA is based on the difference in cost among consumer goods from last year’s third quarter to this year’s, recipients are paying more for items before their benefit actually kicks in for inflation.

“They’ve had to pay for higher air-conditioning costs, higher heating oil and gas costs,” Munnell says, “and now the COLA catches up a year later.”

Higher Medicare premiums have also taken a considerable bite out of annual Social Security COLAs. Since Part B and Part D premiums are deducted directly from Social Security checks, and rising steeply each year, many retirees say they’re barely left with enough of an increase to pay for rising food and fuel prices.

“The Medicare premium alone has doubled since 2000 … and is almost $100 per month,” says David Certner, legislative policy director at AARP. “The Social Security COLA over that time period has only gone up 25 percent. So the health care costs are eating more and more” of recipients’ income each year.

To track inflation’s impact on older Americans in particular, the Bureau of Labor Statistics developed an experimental consumer price index called the CPI-E, which measures the costs of goods and services that people age 62 and older are more likely to rely on, such as health care.

A 25-year study of the CPI-E, released in April, found that older adults on average faced an annual 3.3 percent inflation rate compared with 3 percent for most other consumers.

Not surprisingly, medical care was largely to blame. It rose 269 percent from December 1982 through December 2007; inflation for other goods and services rose 115 percent.

“This is not insignificant,” Monique Morrissey, an economist with the Economic Policy Institute in Washington, says of the higher inflation rate for older people. “Almost every year they’ve fallen farther behind, and most of the reason for that is health care costs. When Social Security is all you’re living on, it makes a difference.”

http://bulletin.aarp.org/yourmoney/socials...mp;DET=F1-82208

[john999]

Usually, the increase in medicare part B takes care of any increase you get from the COLA.

[purple]

Call me a pessimist but I'll believe it when my check gets bigger.... B)

[rentalguy1]

I'll take it!

[Pete53]

I still say it will be between 5 and 7%. I will take it as Pete53 has been doing some belt tightening and have managed to already give myself a nice increase. We have limited our gas to one fill a month and than make due with what we have. I have cut back on other expenses also.

I will also tell all here that we all need to get ready cause inflation is bearing down on us like a freight train.

[Chuck75]

Remember that the SSA COL adjustment is calculated using a formulae that does not reflect the true cost of living increase. As a result, SSA payments just get farther and farther behind. The last time I bothered to crunch numbers, the results I got were more like 50%-75% of the actual cost of living increase.

I still say it will be between 5 and 7%. I will take it as Pete53 has been doing some belt tightening and have managed to already give myself a nice increase. We have limited our gas to one fill a month and than make due with what we have. I have cut back on other expenses also.

I will also tell all here that we all need to get ready cause inflation is bearing down on us like a freight train.

[Stretch]

Jee, I thought that the VDBC (Veterans Disability Benefits Commision) estimate of 25% increase sounded pretty good. Guess that the report was put on the back burner.