No Social Security cost of living adjustment for you!

pickpocketFor 50 million Americans currently collecting Social Security, the news that they will receive no yearly cost-of-living adjustment this year for the first time since the COLA was added to the program in 1975 is distressing. However, is it unfair?

The COLA is based on the Bureau of Labor Statistics' Consumer Price index, a monthly and yearly computation that more or less reflects the change in prices of 200 products. The products fall within eight categories; Food and Beverages, Housing, Apparel, Transportation, Medical Care, Recreation, Education and Communication, Other goods and services. It does not include income and Social Security tax, or changes in value of investment items and real estate.

At the end of 2008, SS recipients were given a 5.8% COLA, although the CPI was only up 3.8% for the year. While this might seem like a bonus, remember that 2008 was an atypical year, with energy costs driving the index up to a high of 219.086 before falling back to 215.303 at the end of the year.



Last year's large COLA, the year's low inflation, and the $250 stimulus bonus paid to SS recipients is cited by some as good reasons to bypass an increase for 2009. Among those who speak in favor of some modest increase is the National Committee to Preserve Social Security and Medicare, which promotes a 1% increase or one-time $150 payment. This would cost the government around $8 billion.

Supporters of the increase defend their proposal by pointing out that for the elderly, medical costs comprise a disproportionate part of their overall expenses. The BLS medical care index shows these costs are up 2% this year through the end of July. The overall cost of living, on the other hand, is just about where it was at the end of 2009.

The 32 million retirees using Medicare's drug program are looking at an average out of pocket increase for this coverage of $28 per month this year and $30. Unlike Medicare Part B, which cannot by law go up unless the COLA goes up, drug coverage is allowed to rise with the market.

The average Social Security benefit is $1,153 per month. A 1% raise would bump this up by $11.53 a month. If all other expenses remain constant, the increased drug program cost for 2009 represents a 2.5% decline in real income to those using the program.

In this recession, everyone has suffered, and we can only hope that the suffering has been spread out fairly. Social Security recipients are being asked to suffer a little more while we careen recklessly toward the train wreck that is already in sight, the depletion of the fund. It's much easier to swallow a sacrifice today if it is part of a coherent strategy to fix upcoming problems. Unfortunately, I don't think many retirees see any sign Washington intends to do anything about it except nickel and dime them.

Is the 0% COLA fair? I can't decide. The sad fact is that I've become so numbed by trillion dollar deficits and $700 billion stimulus expenses that a mere $8 billion dollars seems like chump change, and our nation's retirees deserve better than that.


Increase your money and finance knowledge from home

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

TurboTax Articles

When the IRS Classifies Your Business as a Hobby

If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.

What is IRS Form 8917?

If you, your spouse or dependents attended post-secondary school, you may be able to deduct a portion of the tuition and fees by reporting it on IRS Form 8717.

Add a Comment

*0 / 3000 Character Maximum